2021 (12) TMI 21 - HC - Income Tax

Bogus purchases - in making the addition AO has primarily relied upon some information received from the office of the Director General of Income Tax (Investigation), Mumbai regarding bogus purchases - notice issued to these three parties under Section 133 (6) of the Act remained unserved because they are not available/traceable - ITAT deleted the addition - HELD THAT - ITAT has on facts came to a conclusion that respondent has filed before the Assessing Officer complete books of accounts, items wise stock register evidencing the receipts of gift materials and issue thereof. ITAT has also accepted the photographs of the functions and promotional activities and confirmations from the shop keepers. What really tilted the opinion of ITAT in favour of respondent is that respondent had produced copies of bank statements of Punjab National Bank and Axis Bank evidencing the payments through banking channels by account payee cheques to the suppliers. Nothing in the order of the AO that the Assessing Officer has looked into or considered this fact dispassionately. The ITAT, therefore, came to a conclusion that respondent has discharged its onus by producing the books of accounts, stock register, stock tally and also filed various documentary evidences such as statements of banks. According to ITAT, once respondent has discharged this burden, the onus shifts to the Revenue and the AO has not conducted any independent inquiry or further verification of the records produced before him. We have to note that this view of ITAT has not even been challenged and no substantial question of law has been proposed. Admittedly the three parties are private limited companies. Assessing Officer does not mention anywhere to which address the notice under Section 133 (6) of the Act was sent because being a company, certainly the records in the office of the Ministry of Corporate Affairs or the Registrar of Companies will indicate the address of the registered office of these three entities. AO only says the notices remained unserved because companies are not available/traceable. That is neither here nor there because the Assessing Officer should have stated why the notices were not served - Was it because of any endorsement by the postal authorities that there was no such company in existence at the address mentioned or intimation posted but not collected or refused. Another point we have to note is that the Director of these three companies, on whose notarised affidavit cum declaration the Assessing Officer was relying upon, was not even made available for cross examination. - Decided against revenue.

Summary

Issues:
1. Whether the ITAT was justified in deleting the addition of ?4,92,43,370 made on account of bogus purchases?
2. Whether the ITAT was correct in deleting the addition of ?4,92,43,370 based on payments made through banking channels?
3. Whether the ITAT was justified in deleting the addition of ?4,92,43,370 due to the lack of physical delivery of goods from alleged purchase parties?

Analysis:

Issue 1:
The appellant challenged the deletion of the addition of ?4,92,43,370 made on account of alleged bogus purchases by the ITAT. The Assessing Officer relied on information from the Director General of Income Tax (Investigation) and a notification by the Sales Tax Department declaring certain parties as hawala dealers. The parties in question were alleged to have issued false bills without delivering goods. The ITAT accepted the respondent's evidence, including bank statements showing payments through banking channels, stock registers, and promotional activity documentation. The ITAT concluded that the respondent had discharged its burden of proof, shifting the onus to the Revenue. The High Court agreed with the ITAT's decision, finding no substantial question of law raised.

Issue 2:
Regarding the second issue, the ITAT's decision to delete the addition based on payments made through banking channels was upheld. The respondent had provided evidence of payments through account payee cheques to suppliers, which the ITAT considered in favor of the respondent. The High Court noted that the Assessing Officer did not consider this evidence, and the ITAT's conclusion was not challenged. Therefore, the High Court found no error in the ITAT's decision.

Issue 3:
The third issue involved the physical delivery of goods from alleged purchase parties. The Assessing Officer had raised concerns about non-genuine purchases due to the lack of physical delivery. However, the ITAT found that the respondent had produced sufficient evidence, including stock registers, bank statements, and confirmations from shopkeepers. The High Court observed that the Assessing Officer did not conduct independent verification and agreed with the ITAT's decision. The High Court dismissed the appeal, stating that the Tribunal did not commit any errors in its analysis of the facts and application of the law.

Additional Judgment:
In a separate appeal with similar facts, the High Court dismissed the appeal challenging the deletion of additions related to alleged bogus purchases. The Assessing Officer's failure to provide clear reasons for non-service of notices to parties and lack of cross-examination of directors weakened the Revenue's case. The High Court emphasized the importance of proper analysis of facts and correct application of legal principles in deciding tax matters, leading to the dismissal of the appeal.