2020 (9) TMI 90 - AT - Income Tax

Bogus purchases u/s 37(1) - Reopening of assessment u/s 147 - assessee failed to confirm the purchases - CIT(A) deleted the addition - HELD THAT - Case of the assessee was reopened on the basis of information received from the DIT (Inv.). The doubtful purchase was found for the F.Y.s 2005-06 to 2012-13. The AO issued the notices u/s 133(6) which were not served. AO raised the addition on the basis of peak purchase - CIT(A) has deleted the same on the basis of this fact that the assessee s unit was 99% exports unit and the sale was supported by documents of export and stock register confirmed sale and purchase. The Tax Audit Report confirmed the same. The stock statement produced to the banks was subjected to verification of the third party and the assessee was having its own vehicle for transporting of goods from one place to another. CIT(A) also observed that the AO nowhere brought any substantial material to raise the addition. AO nowhere brought the material on record to prove the fact that the purchase was bogus. The documents relied upon the CIT(A) was already available with the AO which were not considered and discussed. CIT(A) has considered the all relevant material on record and arrived at this conclusion that the addition is not based upon any material available on record. No distinguishable material has been produced on record which required interfere with the order passed by the CIT(A) in question. CIT(A) has decided the issue judiciously and correctly which is not liable to be interfere with - Decided against revenue.

Summary

Issues Involved:
1. Deletion of addition made on account of bogus purchases under Section 37(1) of the Income Tax Act, 1961.
2. Failure of the assessee to prove the identity, genuineness, and creditworthiness of entities who invested as Share Application Money.

Issue-wise Detailed Analysis:

1. Deletion of Addition Made on Account of Bogus Purchases:
The revenue challenged the deletion of an addition of ?1,02,60,150/- made by the Assessing Officer (AO) on account of bogus purchases. The AO had reopened the assessee's case based on information received from the Deputy Director of Income Tax (Investigation), indicating that the assessee had taken bogus purchase entries from eight entities amounting to ?39,78,97,166/- for the financial years 2005-06 to 2012-13. Notices issued under Section 133(6) to these entities were returned unserved, leading the AO to add the peak credit of ?1,02,60,149/- to the assessee's income.

The CIT(A) deleted the addition, noting that the assessee's unit was primarily an export unit (99% of sales) supported by export documents and stock records. The Tax Audit Report confirmed the stock records, and the stock statements submitted to banks were subject to third-party verification. The CIT(A) found no evidence of cash deposits against payments made to the alleged bogus parties and no direct evidence or nexus proving the transactions were merely paper entries. The CIT(A) also referenced several judicial precedents, including the Gujarat High Court in Nangalia Fabrics (P.) Ltd. and the Mumbai ITAT in ACIT v. Ramila Pravin Shah, which held that mere non-appearance of suppliers or unserved notices does not prove bogus purchases if payments were made through banking channels and supported by stock records.

The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO failed to provide substantial evidence to prove the purchases were bogus. The Tribunal noted that the AO's addition was based on suspicion and unverified information without corroborative evidence. Consequently, the Tribunal dismissed the revenue's appeal, affirming that the CIT(A) had judiciously and correctly decided the issue.

2. Failure to Prove Identity, Genuineness, and Creditworthiness of Entities:
The revenue also contended that the CIT(A) erred in not appreciating that the assessee failed to prove the identity, genuineness, and creditworthiness of entities who invested as Share Application Money. However, this issue was inter-connected with the first issue regarding bogus purchases. The Tribunal found that the CIT(A) had considered all relevant materials and arrived at a well-reasoned conclusion that the addition was not based on any substantial evidence. The Tribunal did not find any distinguishable material warranting interference with the CIT(A)'s order.

Conclusion:
The Tribunal dismissed both appeals filed by the revenue, affirming the CIT(A)'s deletion of the addition made on account of bogus purchases and the finding that the assessee's transactions were genuine and supported by substantial evidence. The Tribunal's decision was based on the lack of concrete evidence from the AO to substantiate the claims of bogus purchases and the judicial precedents supporting the assessee's case.