2020 (2) TMI 464 - HC - Income Tax

Bogus purchases or sales u/s 69C - genuineness of the transaction is not explained or explanation offered by the assessee is not satisfactory - tribunal deleted the addition - HELD THAT - Tribunal had returned a finding of fact that the assessee had fled copies of purchase bills, copies of purchase/ sale invoices, challan cum tax invoices in respect of the purchases, extracts of stock ledger showing entry/exit of the materials purchased, copies of bank statements to show that payment for such purchases were made through regular banking channels, etc., to establish the genuineness of the purchases. Tribunal held that AO could not bring on record any material evidence to show that the purchases were bogus. Mere reliance by the Assessing Officer on information obtained from the Sales Tax Department or the statements of two persons made before the Sales Tax Department would not be sufficient to treat the purchases as bogus and thereafter to make addition under Section 69C. Tribunal has also held that if the Assessing Officer had doubted the genuineness of the purchases, it was incumbent upon the AO to have caused further enquiries in the matter to ascertain genuineness or otherwise of the transaction and to have given an opportunity to the assessee to examine/cross-examine those two parties vis-a-vis the statements made by them before the Sales Tax Department. Without causing such further enquiries in respect of the purchases, it was not open to the Assessing Officer to make the addition under Section 69C of the Act. We are in agreement with the view expressed by the Tribunal. In fact, Tribunal has only affirmed the finding of the first appellate authority. Thus, there is concurrent finding of fact by the two lower appellate authorities. As relying on M/S NIKUNJ EXIMP ENTERPRISES PVT LTD. 2013 (1) TMI 88 - BOMBAY HIGH COURT held that merely because the suppliers had not appeared before the Assessing Officer, no conclusion could be arrived at that the purchases were not made by the assessee. - Decided against revenue

Issues Involved:
1. Applicability of Section 69C of the Income Tax Act, 1961 in the case of bogus purchases or sales.
2. Requirement for the Assessing Officer to limit himself to the documents provided by the assessee when purchases are non-genuine.
3. Necessity for the Assessing Officer to conduct further inquiries to ascertain the genuineness of transactions under Section 69C.

Issue-wise Detailed Analysis:

1. Applicability of Section 69C of the Income Tax Act, 1961 in the case of bogus purchases or sales:

The primary issue before the Court was the addition made by the Assessing Officer (AO) to the income of the assessee under Section 69C of the Act, which was subsequently deleted by the first appellate authority and affirmed by the Tribunal. Section 69C pertains to unexplained expenditure, where if an assessee incurs any expenditure and fails to explain the source or provides an unsatisfactory explanation, the amount is deemed to be the income of the assessee. The Tribunal found that the assessee had provided sufficient documentary evidence, such as purchase bills, sale invoices, stock ledger entries, and bank statements showing payments through regular banking channels, to establish the genuineness of the purchases. The AO's reliance on information from the Sales Tax Department and statements from third parties without affording the assessee an opportunity to cross-examine those parties was deemed insufficient to treat the purchases as bogus.

2. Requirement for the Assessing Officer to limit himself to the documents provided by the assessee when purchases are non-genuine:

The Tribunal noted that the AO had not doubted the sales and stock records maintained by the assessee. The first appellate authority highlighted that all payments against the purchases were made through account payee cheques, establishing the source of expenditure beyond doubt. The Tribunal emphasized that the AO failed to bring any material evidence to conclusively prove that the purchases were bogus. Mere reliance on third-party statements and non-response to notices under Section 133(6) of the Act was not enough to treat the purchases as bogus. The Tribunal held that the AO should have conducted further inquiries to ascertain the genuineness of the transactions instead of solely relying on the documents provided by the assessee.

3. Necessity for the Assessing Officer to conduct further inquiries to ascertain the genuineness of transactions under Section 69C:

The Tribunal stressed that if the AO doubted the genuineness of the purchases, it was incumbent upon him to conduct further inquiries. The AO's failure to do so and his reliance on information from the Sales Tax Department without allowing the assessee to cross-examine the third parties led to the conclusion that the addition under Section 69C was unsustainable. The Tribunal's decision was in line with the Gujarat High Court's ruling in Krishna Textiles v/s. CIT, which placed the onus on the revenue to prove that the income belonged to the assessee. The Tribunal also referenced the Bombay High Court's decision in Ashish International, which held that the genuineness of statements relied upon by the revenue must be established, especially when the assessee disputes their correctness and seeks an opportunity to cross-examine the witnesses.

Conclusion:

The High Court agreed with the Tribunal's findings, affirming that the AO did not conduct the necessary inquiries to establish the purchases as bogus. The Court referenced its previous decision in Commissioner of Income Tax -1, Mumbai v/s. Nikunj Eximp Enterprises(P.) Ltd., where it held that the non-appearance of suppliers before the AO does not automatically imply that the purchases were not made by the assessee. Consequently, the Court found no substantial question of law arising from the Tribunal's order and dismissed the appeal, upholding the deletion of the addition under Section 69C.

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