2021 (1) TMI 412 - HC - Income Tax

Bogus purchases - Tribunal held that there is no credible evidence to suggest that assessee has not made any purchase of material at all and even though an inference can be drawn that the parties / sellers were bogus but not the entire purchase of materials - HELD THAT - Findings recorded by the tribunal that the Assessing Officer has not made any independent enquiry is perverse. Therefore, the substantial questions of law framed in this appeal are answered in the affirmative and in favour of the revenue. However, on the basis of meticulous appreciation of material available on record, the Assessing Officer has recorded the conclusions, which has been reproduced above, however, the tribunal has not dealt with the conclusions of the Assessing Officer and in a cryptic and cavalier manner has allowed the appeal preferred by the assessee. The tribunal has also failed to appreciate that in fact, the burden was on the assessee to establish the genuineness of the transaction. In view of preceding analysis, the impugned order passed by the tribunal is hereby quashed and the matter is remitted to the tribunal to decide the issue afresh.

Summary

Issues:
Assessment of purchases made by the assessee from three parties as not genuine, Burden of proof on the assessee to establish genuineness of transactions, Findings of the Assessing Officer regarding non-existence of suppliers, Tribunal's decision to allow the appeal and restrict disallowance to 20% of purchases, Allegations of bogus suppliers and lack of independent evidence, Applicability of Section 37 of the Income Tax Act.

Analysis:

1. Assessment of Purchases:
The High Court dealt with the issue of assessing purchases made by the assessee from three parties as not genuine. The Assessing Officer conducted an independent inquiry, revealing discrepancies such as non-existent suppliers, bogus sales tax registration numbers, and lack of official stamps on invoices. The tribunal, however, held that there was insufficient evidence to suggest no purchases were made at all, leading to a partial allowance of the appeal and a 20% disallowance of purchases. The court found the tribunal's decision to be erroneous, emphasizing the burden on the assessee to prove the genuineness of transactions.

2. Burden of Proof:
The court highlighted the burden on the assessee to establish the authenticity of transactions, especially concerning the procurement of raw materials. The tribunal's failure to address the Assessing Officer's conclusions and its casual allowance of the appeal were considered inadequate. The court reiterated the importance of proving the legitimacy of expenditures under Section 37(1) of the Income Tax Act.

3. Findings of the Assessing Officer:
The Assessing Officer's detailed investigation revealed significant irregularities, including the absence of suppliers at listed addresses, withdrawal of payments by the assessee's employees, and self-made documents submitted as evidence. These findings formed the basis for disallowing the purchases and questioning the genuineness of the transactions, which the tribunal failed to adequately address.

4. Allegations of Bogus Suppliers:
The revenue contended that the tribunal erred in accepting the purchases as genuine despite the non-existence of suppliers and various discrepancies in the transaction details. The court agreed with the revenue's argument, emphasizing the lack of credible evidence to support the authenticity of the purchases from the disputed parties.

5. Applicability of Section 37:
The Senior Counsel for the assessee argued that the expenditures were legitimately incurred for business purposes, supported by payment details and product manufacturing ratios. However, the court found the tribunal's decision flawed, as it did not sufficiently address the Assessing Officer's findings and the burden of proof on the assessee.

In conclusion, the High Court quashed the tribunal's order, remitting the matter for a fresh decision in light of the court's observations. The appeal was disposed of, affirming the importance of establishing the genuineness of transactions and upholding the burden of proof on the assessee in such cases.