2021 (9) TMI 888 - AT - Income Tax

Bogus purchases - CIT-A deleted the addition - HELD THAT - AO could not point out any discrepancies in assessee s documentary evidences. The time allotted to the assessee to produce the parties was inadequate. However, during assessment / remand proceedings, the assessee furnished copies of sale purchases invoices, confirmation of accounts, affidavits of the suppliers, Income Tax Returns of the suppliers, bank statements, and statements of on-to-one mapping of the purchases with corresponding sales. Notices issued u/s 133(6) during remand proceedings were duly responded to by the suppliers along with documentary evidences as desired by Ld. AO. Further, there was no adverse remark in the remand report regarding the authenticity of documents submitted by the assessee as well as by the suppliers. The three suppliers were well in existence as on-going business concerns. Therefore, the assessee, in our considered opinion, had duly substantiated the purchases transactions and the additions have rightly been deleted by Ld. CIT(A) in the impugned order. - Decided against revenue. Addition u/s 68 on unsecured loans - availability of funds with the lenders at that point of time when it is claimed that such finance was transacted and transferred to the bank account of the appellant - HELD THAT - Lenders transacted in sizeable amounts during the impugned assessment year and there was sufficient credit balance in their bank accounts to lend money to the appellant. The transactions have duly been confirmed by the lender and confirmatory affidavits have been placed on record. The additional documents furnished by the assessee were forwarded to Ld. AO and the same were verified in the remand proceedings - AO has not pointed out any discrepancy in the said documentary evidences. It is noteworthy that notices issued u/s 133(6) during remand proceedings were duly responded to by the lenders along with documentary evidences. Few of the lenders appeared before Ld. AO and confirmed the transactions. The interest was paid on loans after complying with TDS requirements - conclusion of Ld. CIT(A) that the assessee demonstrated fulfillment of primary ingredients viz. identity and creditworthiness of the loan creditors and genuineness of the loan transactions, could not be faulted with - interest paid by the assessee on these loans was to be allowed. Finding no reason to interfere in the findings of Ld. CIT(A) - Decided against revenue.

Issues Involved:
1. Deletion of disallowance of purchases on G.P% basis and addition on estimated commission of bogus purchase transactions.
2. Consideration of information from DGIT(Inv.) regarding bogus purchases.
3. Genuineness and creditworthiness of purchase transactions.
4. Onus to justify claim of expenses related to purchases from non-credible vendors.
5. Non-consideration of the decision in N K Proteins Ltd. vs. DCIT regarding bogus suppliers.
6. Deletion of addition made on account of bogus loans and interest claimed.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance of Purchases on G.P% Basis and Addition on Estimated Commission of Bogus Purchase Transactions:
The Ld. AO rejected the assessee's books u/s 145(3) and estimated additions based on a lower Gross Profit (GP) rate compared to the previous year. The GP rate was 4.05% against 5.17% in the preceding year, leading to an addition of ?75.22 Lacs on unproved purchases and an estimated commission of 2%. The Ld. CIT(A) found that the Ld. AO could not point out discrepancies in the documentary evidence provided by the assessee, such as purchase invoices, sales invoices, stock book, ledger confirmations, and bank statements. The suppliers responded to notices u/s 133(6) during remand proceedings, confirming the transactions. Therefore, the addition was not sustainable, and the deletion was upheld.

2. Consideration of Information from DGIT(Inv.) Regarding Bogus Purchases:
The Ld. AO based the addition on information from DGIT(Inv.) about bogus purchases from dealers without actual supply of goods. However, the Ld. CIT(A) noted that the assessee provided substantial evidence, including confirmations and affidavits from suppliers, and there was no adverse remark in the remand report regarding the authenticity of these documents. The suppliers were ongoing business concerns, and the addition was not justified.

3. Genuineness and Creditworthiness of Purchase Transactions:
The Ld. AO questioned the genuineness and creditworthiness of the purchase transactions. The assessee provided comprehensive documentation, including ITRs of suppliers, bank statements, and affidavits. During remand proceedings, the suppliers confirmed the transactions, and the Ld. CIT(A) found no discrepancies in the evidence. The deletion of the addition was upheld as the transactions were substantiated.

4. Onus to Justify Claim of Expenses Related to Purchases from Non-Credible Vendors:
The Ld. AO argued that the onus to justify the claim of expenses was on the assessee, who failed to discharge it. However, the Ld. CIT(A) found that the assessee provided sufficient evidence, and the suppliers confirmed the transactions during remand proceedings. The addition was not sustainable, and the deletion was upheld.

5. Non-Consideration of the Decision in N K Proteins Ltd. vs. DCIT Regarding Bogus Suppliers:
The Ld. AO cited the decision in N K Proteins Ltd. vs. DCIT, where the entire purchases from bogus suppliers were disallowed. However, the Ld. CIT(A) distinguished the case, noting that the suppliers in the present case were ongoing business concerns and confirmed the transactions. The deletion of the addition was upheld.

6. Deletion of Addition Made on Account of Bogus Loans and Interest Claimed:
The Ld. AO added ?805.01 Lacs as unexplained cash credit u/s 68, based on the involvement of accommodation entry providers. The assessee provided account confirmations, bank statements, ITR acknowledgments, and affidavits from lenders. During remand proceedings, the lenders confirmed the transactions, and the Ld. CIT(A) found no discrepancies. The loans were repaid within the same financial year, and the interest was paid after TDS compliance. The Ld. CIT(A) concluded that the assessee demonstrated the identity, creditworthiness, and genuineness of the loan transactions, and the addition was not sustainable. The deletion of the addition and the allowance of interest were upheld.

Conclusion:
The appeal was dismissed, and the deletions made by the Ld. CIT(A) on account of alleged bogus purchases and loans were upheld. The Ld. AO's additions were found to be unsupported by discrepancies in the documentary evidence provided by the assessee, and the transactions were substantiated during remand proceedings. The decision was pronounced on 13th September 2021.

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