Bogus purchase disallowance reduced from loss declared by assessee as purchases were related to the same business – ITAT

Bogus purchase disallowance reduced from loss declared by the assessee as the purchases were related to the same business only – ITAT

ABCAUS Case Law Citation:
ABCAUS 1247 (2017) (05) ITAT

The Grievance:
The appellant assessee was aggrieved by the order passed by the Commissioner of Income Tax(A) confirming the action of the Assessing Officer (‘AO’) in making disallowance of purchases u/s 69C of the Income Tax Act, 1961 (‘the Act’) treating the purchases as bogus in nature.

Assessment Year : 2009-10
Date/Month of Pronouncement: May, 2017

Brief Facts of the Case:
The assessee was engaged in the business of manufacturing packaging materials. The Revenue received information from the Sales Tax Department that certain dealers are engaged in providing bogus accommodation bills to the parties without actually supplying the materials. It was noticed that the assessee had made purchases amounting to Rs. 2,57,002/- from such two parties.

Since the assessee did not furnish evidence such as delivery challans, stock register, payment details, lorry receipts, octroi payment etc., the Assessing Officer disallowed the purchases by invoking provisions of section 69C of the Act.

Though the assessee had declared loss from the business to the tune of Rs. 28,26,894/- in the return of income filed by it, the AO, without reducing the loss by the amount of disallowance made by him, assessed the disallowance of Rs. 2,57,002/- being the amount of alleged bogus purchases as total income of the assessee.

The CIT(A) also confirmed the same and hence the assessee had filed the present appeal before the Tribunal.

Observations made by the Tribunal:
The Tribunal observed that the Assessing Officer had not given any justification for not reducing the disallowance of purchases from the loss declared by the assessee. No convincing explanation for the same could be offered before the ITAT as well.

The Tribunal stated that it is a well settled proposition that right available to the assessee cannot be taken away by the Assessing Officer according to his whims and fancies. It was noted that the assessee had declared loss of Rs. 28,26,894/- from the business carried on by him. The disallowance of purchases made by the Assessing Officer was related to the very same business only.  

In view of the above, the ITAT opined that in all fairness, the disallowed amount should have gone to reduce the loss declared by the assessee.

Held:
The ITAT set aside the order of the CIT(A) and directed the AO to reduce the amount of impugned disallowance from the loss declared by the assessee and accordingly compute the total loss of the assessee.