2022 (9) TMI 1027 - AT - Income Tax

Bogus purchases - genuineness of purchase of TMT bars and Steel from three vendors who are allegedly black listed by the Sales tax department, Mumbai - grounds raised are primarily on the basis that revenue have questioned the genuineness of purchase of TMT bars and Steel from three vendors who are allegedly black listed by the Sales tax department, Mumbai - HELD THAT - What can be concluded is that in spite of AO having been given opportunity, he was unable to lay hand on any material evidence to rebut the submissions of assessee. The order of AO and the examination of facts and circumstances by CIT(A) indicate as if a presumption of truth was attached to all proceedings of VAT department, Mumbai and the onus was on assessee to rebut the same. Rather once CIT(A) had called for specific report from AO then unless there was specific material collected to rebut the submissions of assessee then merely on basis of inference from the circumstances, the purchase could not have been held to be bogus, by the CIT(A). In fact assesse s own accounts stand admitted by revenue which reflect that the work order with Govt of Jharkhand was source of revenue as shown in the balance sheet of assessee, where the Transport Department of Jhankhand is shown as a debtor - Revenue has accepted the income of assessee and relevant is scheduled at 13 available at page no. 63 of the paper book, being part of the copy of ITR of assessee company, wherein income from sales (E-cheque post), for which purchases were made and sub contracted to M/s. Mettler Toledo India (P) Ltd, has been shown to be Rs. 12,33,81,325/-. Thus, it was unfair on the part of Ld. Tax authorities below to consider the purchases of stocks used for earning this revenue by alleging it as bogus. Therefore, grounds raised are sustained and the appeal is allowed.

Issues Involved:
1. Legitimacy of purchase invoices from three proprietary concerns.
2. Justification of addition of Rs. 53,88,909/- to the total income of the assessee based on alleged bogus purchases.
3. Adherence to principles of natural justice in the assessment proceedings.

Issue-Wise Detailed Analysis:

1. Legitimacy of Purchase Invoices from Three Proprietary Concerns:
The case revolves around whether the purchase invoices procured from three proprietary concerns (M/s Asian Steel, M/s Suraj Tube Corporation, and M/s Chanchal Tube Corporation) were genuine. The VAT Department, Mumbai, had identified these concerns as issuing bogus invoices. The assessee company was found to have procured invoices from these concerns, which led to a show cause notice being issued to explain the genuineness of these invoices.

The assessee argued that the purchases were genuine and provided ledger accounts, invoices, and payment details. However, the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] were not satisfied with the evidence provided and concluded that the purchases were bogus. The CIT(A) noted that the assessee failed to provide comprehensive details from the order of purchase to the delivery of goods, which was crucial to prove the genuineness of the transactions.

2. Justification of Addition of Rs. 53,88,909/- to the Total Income:
The AO made an addition of Rs. 53,88,909/- to the total income of the assessee, which was upheld by the CIT(A). The addition was based on the information received from the VAT Department, Mumbai, and the failure of the assessee to provide satisfactory evidence to prove the genuineness of the purchases. The CIT(A) highlighted several points, including the lack of work orders from the Government of Jharkhand, absence of evidence for receiving extra steel items, and the dubious nature of the vendors' operations.

The assessee rebutted these points by providing various documents and explanations, such as quotations from Mettler Toledo, purchase orders, and invoices. The assessee also argued that delays in payments are common in government contracts and that the income from the contract with the Government of Jharkhand had been duly offered and taxed.

3. Adherence to Principles of Natural Justice:
The assessee contended that the addition was made without pointing out any defect in the explanation or documents furnished and without conducting any independent enquiry by the AO. The CIT(A) had sought a remand report from the AO to verify the assessee's claims, but the AO was unable to obtain any conclusive evidence from Mettler Toledo or the Government of Jharkhand.

The Tribunal observed that the AO and CIT(A) had placed undue reliance on the presumption of truth attached to the VAT Department's proceedings without adequately considering the assessee's submissions. The Tribunal noted that the revenue authorities had accepted the income from the Jharkhand contract, which indicated that the underlying transactions were genuine.

Conclusion:
The Tribunal concluded that the revenue authorities had unfairly considered the purchases as bogus without sufficient evidence to rebut the assessee's claims. The Tribunal allowed the appeal, stating that the grounds raised by the assessee were sustained and the addition of Rs. 53,88,909/- was unjustified.

Order:
The appeal was allowed, and the order was pronounced in the open court on 20th September, 2022.

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