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TMI Blog2024 (10) TMI 766X X X X Extracts X X X X X X X X Extracts X X X X ..... t conducted the exercise as expected of him, the CIT-A has effected a summary measure of disallowing 10% of the expenses and the ITAT has been happy to endorse the same as an equitable middle ground. Such an approach cannot be endorsed as a process known to law to disallow expenses on the premise of their being bogus. ITAT has returned a firm finding that there is no cogent or convincing evidence in the AO Order. Against such backdrop, the ITAT believed that the factual pattern of the matter at hand is similar to the factual context of Nikunj. That being the case, the outcome too ought to have been similar to Nikunj, where the disallowance was entirely rejected by the ITAT. In the instant case, the ITAT appears to have found it convenient that the CIT-A had chosen to disallow 10% of the expenses and it appears to be an acceptable consolation to strike a balance. We have to note that once there is a quasi-judicial finding that there is no cogent and convincing evidence at all on the part of the Revenue in levelling an allegation, it would be wrong to expect that the Assessee would still have to prove its innocence. The ITAT ought to have gone into this facet of the matter and dealt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holding the findings of the CIT-A, by disallowing 10% of the total purchases alleged to have been bogus, and adding such sum to the income of the Appellant-Assessee for the relevant Assessment Years. 4. The Appellant-Assessee wants this Court to hold that all the purchases were genuine and must be allowed as legitimate expenses. The Respondent-Revenue had wanted this Court to hold that all the expenses ought to have been treated as bogus and that the ITAT was wrong in disallowing only 10% of such expenses. It is a matter of record that Income Tax Appeal No. 1349 of 2018, filed by the Revenue against the very same Impugned Order, was not entertained by a Division Bench of this Court by an order dated April 24, 2024. 5. The grievances of the Revenue being different from the grievances of the Assessee, the dismissal of the Revenue s appeal is not conclusively determinative of the status of the Assessee s grievances. We have heard the parties at length with this specific perspective in mind. 6. We are conscious that our jurisdiction relates to answering substantial questions of law. Having heard Mr. N.M. Porwal, Learned Counsel on behalf of the Appellant-Assessee and Ms. Swapna Gokhale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indirect tax requirements such as sales tax returns and VAT audit reports. The ITAT has also held that it cannot be said that goods have not been sold by the Assessee. Most importantly, the ITAT has returned a firm finding that the adverse findings contained in the AO Order were not based on any cogent and convincing evidence. 8. Once such a view has been arrived at by the ITAT, which is the last forum for finding of fact, namely, that the AO Order disallowing 100% of the purchases under cloud, is not based on any cogent and convincing evidence, it would follow that the AO Order has been judicially found to be untenable. Therefore, the foundation on which these proceedings were based stand completely undermined. 9. However, the ITAT went on to state that the Appellant-Assessee has also failed to produce the parties from whom the alleged purchases were made and documents to prove the movement of goods (such as lorry receipts). The ITAT came to a view that goods would have indeed been purchased in the grey market. On this basis, it appears that the ITAT took an easy way out by simply upholding the order of the CIT-A by disallowing only 10% of the purchases and adding that amount to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e from suspect persons on the basis of input from the investigation wing and sales tax authorities. The ground in the instant case too is that the persons from whom the purchases were made had not been produced before the Assessing Officer. The ITAT has endorsed the CIT-A s acceptance of the sales tax returns and the VAT audit report. The ITAT has returned a firm finding that there is no cogent or convincing evidence in the AO Order. Against such backdrop, the ITAT believed that the factual pattern of the matter at hand is similar to the factual context of Nikunj. That being the case, the outcome too ought to have been similar to Nikunj, where the disallowance was entirely rejected by the ITAT. In the instant case, the ITAT appears to have found it convenient that the CIT-A had chosen to disallow 10% of the expenses and it appears to be an acceptable consolation to strike a balance. 13. However, we have to note that once there is a quasi-judicial finding that there is no cogent and convincing evidence at all on the part of the Revenue in levelling an allegation, it would be wrong to expect that the Assessee would still have to prove its innocence. The ITAT ought to have gone into t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was merely information received by it in pursuance of notices issued under section 133 (6) of the Act, as responded by some of the suppliers. However, an unimpeachable situation that such suppliers could be labeled to be not genuine qua the assessee or qua the transaction entered with the assessee by such suppliers, was not available on the record of the assessment proceedings. It is an admitted position that during the assessment proceedings, the assessee filed all necessary documents in support of the returns on which the ledger accounts were prepared, including confirmation of the supplies by the suppliers, purchase bills, delivery bank statements etc. to justify the genuineness of the purchases, however, such documents were doubted by the AO on the basis of general information received by the AO from the Sales Tax Department. In our opinion, to wholly reject these documents merely on a general information received from the Sales Tax Department, would not be a proper approach on the part of the AO, in the absence of strong documentary evidence, including a statement of the Sales Tax Department that qua the actual purchases as undertaken by the assessee from such suppliers the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the issue of bogus purchases would not be conducive. It also cannot be on the basis of superficial inquiry being conducted in a manner not known to law in its attempt to weed out any evasion of tax on bogus transactions. The bogus transactions are in the nature of a camouflage and/or a dishonest attempt on the part of the assessee to avoid tax, resulting in addition to the assessee's income. It is for such reason, the approach of the AO is required to be well considered approach and in making such additions, he is expected to adhere to the lawful norms and well settled principles. After such scrutiny, the transactions are found to be bogus as the law would understand, in that event, they are required to be discarded by making an appropriate permissible addition. ***** 16. The assessee has happily accepted such finding as this has benefited the assessee, looked from any angle. However, in a given case if the Income-tax Authorities are of the view that there are questionable and/or bogus purchases, in that event, it is the solemn obligation and duty of the Income-tax Authorities and more particularly of the A.O. to undertake all necessary enquiry including to procure all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent enquiry. Tribunal had recorded a finding that assessing officer had failed to show that the purchased materials were bogus and held that there was no justification to doubt genuineness of the purchases made by the respondent assessee . 19. We are in agreement with the views expressed by the Tribunal. Merely on suspicion based on information received from another authority, the assessing officer ought not to have made the additions without carrying out independent enquiry and without affording due opportunity to the respondent-assessee to controvert the statements made by the sellers before the other authority . Accordingly, we do not find any good ground to entertain this question for consideration as well. [Emphasis Supplied] 20. The Supreme Court dismissed the Special Leave Petition challenging the aforesaid decision. In the instant case, the onus of bringing the purchases by the Appellant-Assessee under cloud was on the Respondent-Revenue, which has not discharged this burden in the first place. Apart from the inputs being received from the investigation wing, there is nothing concrete in the material on record that was used to confront the Appellant-Assessee. If the counte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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