2024 (1) TMI 351 - AT - Income Tax

Bogus purchases - addition made as in the earlier years assessee had admitted that certain purchases made from three parties were not genuine - HELD THAT - If assessee had shown purchase bills for licenses along with copy of covering letter for transfer of licenses duly attested by the Bank Manager along with transactions reflected in the bank accounts then it cannot be held that assessee had not made any purchases. Apart from that, assessee has also produced stock register highlighting the purchases, corresponding sales made to various parties. These document shows date wise, license number wise purchases made from M/s. SAR Engineering Ltd. and corresponding sales made to various parties along with inward and outward quantity of stock. None of these details of trading account have been doubted or the books of accounts has been rejected by the ld. AO. The assessee has also filed copy of ledger accounts of the parties to M/s. Mota Trading Pvt. Ltd. 15 whom assessee has made sales of the same licenses purchased from M/s. SAR Engineering Ltd. which are also reflected in the bank statements, that the amount received from the parties to whom the same licenses were sold. Another important piece of evidence was that assessee had filed customer wise VAT sales return not only in the case of assessee itself but also of SAR Engineering Ltd., which goes to show that the purchase and sales have been accepted by the VAT department. Once the source of purchases are from the books duly corroborated by inward stock register, quantity details of licenses purchased and corresponding details of sales made to various parties, then it cannot be held that purchases are bogus. The entire case of the ld. AO hinges upon the fact that in the earlier years assessee had admitted that certain purchases made from three parties were not genuine. However, nothing has been stated for the current assessment year, nor even in the earlier years, M/s. SAR Engineering Ltd. was amongst the three parties. The AO has drawn adverse inference based on some admission in the earlier year of some other party to doubt otherwise genuine purchases made from another party in this year. There is no substance or any concrete finding based on material for doubting the purchases made from SAR Engineering Ltd. and accordingly such reasons are unsustainable. Accordingly, the finding and the observation given by the ld. CIT (A) are upheld and addition has been deleted. AO was not given opportunity while admitting the additional ground - It has not been specified which additional ground has been admitted. If it is for challenging the validity of reopening u/s 147/148, then it cannot be reckoned as additional ground, because assessee has raised objections against reopening u/s. 147/148 which the ld. AO has rejected in his letter disposing of the objection. Assessee has raised this ground before the ld. CIT (A) as it was also raised before the ld. AO, therefore, it cannot be held that the validity of reopening was additional ground. Infact, the department has not even challenged the quashing of the assessment order. If the assessment order itself has been quashed then challenging the deletion of additions on merits is purely academic, because the assessment itself is quashed and held to be invalid against which there is no appeal. If the additional grounds is with regard to principle of natural justice on which ld. CIT (A) has given his remarks that also cannot be treated as additional ground. Consequently, all the grounds raised by the department is dismissed.

Summary

Issues Involved:
1. Deletion of addition made on disallowance of Rs. 2,51,76,570/- being purchase made from M/s SAR Engineering Ltd.
2. Violation of principles of natural justice by the CIT(A) in deciding against the AO without providing an opportunity of being heard when admitting the additional ground.

Summary:

Issue 1: Deletion of Addition on Disallowance of Purchases
The Revenue challenged the deletion of the addition made on disallowance of Rs. 2,51,76,570/- for purchases from M/s SAR Engineering Ltd., which was deemed a suspicious entity. The AO had reopened the assessment based on information from the Dy. DIT (Inv.) indicating M/s SAR Engineering Ltd. was non-genuine. Despite the assessee providing extensive documentation, including tax invoices, bank statements, and VAT returns, the AO concluded the purchases were bogus due to the inability to trace M/s SAR Engineering Ltd. The CIT(A) quashed the assessment, stating the AO's findings were based on suspicion rather than conclusive evidence. The CIT(A) emphasized that all transactions were through banking channels and no evidence suggested the suppliers withdrew cash immediately after deposits, which would indicate the money was returned to the assessee. The CIT(A) also noted that the AO did not reject the assessee's books of accounts or doubt the purchases themselves but questioned the genuineness of the suppliers. The Tribunal upheld the CIT(A)'s decision, noting that the AO's adverse inference was based on past admissions unrelated to the current assessment year and party involved.

Issue 2: Violation of Principles of Natural Justice
The Revenue argued that the CIT(A) erred by deciding against the AO without providing an opportunity of being heard when admitting the additional ground. The Tribunal clarified that the validity of reopening u/s 147/148 was not an additional ground since the assessee had already raised objections against reopening, which the AO had addressed. The Tribunal found no merit in the Revenue's claim as the department did not challenge the quashing of the assessment order. Since the assessment itself was quashed, the challenge to the deletion of additions on merits was deemed academic.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to quash the assessment and delete the addition made on disallowance of purchases from M/s SAR Engineering Ltd. The Tribunal emphasized the lack of concrete evidence from the AO to substantiate the claim of bogus purchases and the proper adherence to principles of natural justice by the CIT(A).