2022 (9) TMI 177 - AT - Income Tax

Bogus Purchases - CIT-A deleted the addition - HELD THAT - CIT(A) has rightly observed that the disallowance of expenditure claimed by the assessee does not have any implications on its income which has been accounted for as work-in-progress. By observing so, he deleted the addition made by the AO. At the same time, we further observe that the AO in para 5 of the assessment order had observed that the assessee has claimed expenditure on account of purchase from certain parties who are involved in merely issue of purchase bills and effecting payments through banking channels for commission and not actually supported with the physical transfer of goods. From first appellate order, we observe that the CIT(A) concluded the issue in favour of the assessee by observing and directing the AO to make available all adverse material and to allow opportunity to the assessee to explain/rebut the evidence and this may be undertaken during AY 2012-13 and subsequent years when the said expenditures embedded in the work-in-progress will be considered for computing the income of the assessee as per POC method and also directed the AO to take action as per law. CIT(A) passed impugned order on 11.07.2014, much water have flown till today including conclusion of assessment proceedings for the several assessment years to AY 2011-12, including AY 2012-13 and outcome of these orders has to be taken care by the authorities below in view of controversy arose during AY 2011-12. Therefore, we find it appropriate and necessary to restore the issue to the file of the CIT(A) to consider the adjudication of the issue in AY 2012-13 and relevant subsequent assessment years - Appeal allowed for statistical purposes.

Summary

Issues:
Appeal against order dated 11.07.2014 of CIT(A)-1, New Delhi for Assessment Year 2011-12.

Analysis:
1. The Revenue raised grounds of appeal against the deletion of addition of disallowance of Rs.2,00,07,633/- made by the Assessing Officer on account of 'Bogus Purchase'. The Senior DR argued that the purchases were rightly treated as 'bogus' as parties were not genuine business entities. The AO's observations highlighted discrepancies in parties' existence, locations, and transactions, leading to the addition.
2. The CIT(A) granted relief to the assessee, emphasizing the genuineness of purchases with documentary evidence submitted during assessment proceedings. The CIT(A) found the AO's action arbitrary and predetermined, noting that similar disallowances for other parties were deleted in previous cases. The CIT(A) directed the AO to provide adverse material and allow the assessee to explain during future assessment years.
3. The ITAT observed that while the CIT(A) rightly deleted the addition, discrepancies in parties' transactions remained. Considering the implications on future assessment years, the ITAT restored the issue to the CIT(A) for re-adjudication during AY 2012-13 and subsequent years. The Cross Objection filed by the assessee supporting the CIT(A)'s order was also sent back for reconsideration.
4. Ultimately, the appeal by the Revenue and the Cross Objection by the assessee were allowed for statistical purposes, with the issue being remanded to the CIT(A) for further review and consideration in light of future assessment years.

This detailed analysis covers the issues raised in the appeal and provides a comprehensive understanding of the judgment delivered by the ITAT Delhi.