Bogus Purchases-AO cannot sit back and make addition without enquiry simply relying on information from Sales Tax Deptt. and issuing notices u/s 133(6)-ITAT
ABCAUS Case Law Citation:
ABCAUS 1258 (2017) (05) ITAT
The instant case deal with four appeals. Common grievance of all the assessee pertained to upholding addition @ 12.5% on the alleged bogus purchases u/s 69C of the Income Tax Act, 1961. Facts were similar in case of all the assessees.
Assessment Year : 2009-10
Date/Month of Pronouncement: May, 2017
Important Case Laws Cited/relied upon:
Nikunj Eximp Enterprises (P.) Ltd. v. CIT (Bom.) ; CIT v. Nangalia Fabrics (P.) Ltd. (Guj.) ; CIT v. M.K. Bros. (Guj.) ; Asstt. CIT v. Akruti Dyeing & Printing Mills (P.) Ltd. ; CIT v. Veekay Prints (P.) Ltd. ; Diagnostics v. CIT ; ITO v. Totaram B. Sharma ; Dy. CIT v. Adinath Industries (Guj.) ; CIT v. Precious Jewels Corpn. (Raj.) ; CIT v. Rajesh P. Soni
Observations made by the Tribunal:
The ITAT observed that the basis on which AO disallowed the alleged bogus purchases was the non-appearance of the suppliers before the AO to verify the purchases.
The Tribunal further observed that many Benches of ITAT and Hon’ble High Courts have held that when purchases are supported by sufficient documentary evidences then merely because of non-appearance before the AO, one cannot conclude that the purchases were not made by the assessee.
It was noted that from the assessment order it was evident that the AO had issued notices u/s 133(6) on the basis of information obtained from the Sales Tax Department. And as the assessee failed to produce the concerned parties, the AO, primarily relying upon the information obtained from the Sales Tax Department held the purchases to be bogus and added 12.5% profit in addition to the normal profit declared by the assessee.
The Tribunal observed that though, it might be a fact that assessee was not able to produce the concerned parties before the Assessing Officer, for whatever may be the reason, fact remained that during assessment proceedings itself the assessee had produced confirmed ledger copies of concerned parties, bank account statement, purchase bills, delivery challans, etc., to prove the genuineness of the purchases. It was also a fact on record that the AO had not doubted the sales effected by the assessee. Thus, it was logical to conclude that without corresponding purchases being effected the assessee could not have made the sales. Moreover, the AO had not brought any material on record to conclusively establish the fact that purchases were bogus. Merely relying upon the information from the Sales Tax Department or the fact that parties were not produced the Assessing Officer could not have treated the purchases as bogus and made addition. If the AO had any doubt with regard to purchases made, it was incumbent upon him to make further investigation to ascertain the genuineness of the transactions.
The Tribunal opined that Without making any further enquiry or investigation the Assessing Officer cannot sit back and make the addition by simply relying upon the information obtained from the Sales Tax Department and issuing notices under section 133(6) of the Act.
Thus, in view of the fact that As the Assessing Officer had failed to make any enquiry or investigation to prove the fact that the purchase transactions are not genuine whereas the assessee had brought documentary evidences on record to prove genuineness of such transactions which were not found to be fabricated or non-genuine, the ITAT opined that the action of the Assessing Officer in ignoring them could not be accepted.
The ITAT further observed that when the payment to the concerned parties were made through proper banking channel and there was no evidence before the Assessing Officer that the payments made were again routed back to the assessee, the addition made by estimating further profit of 12.5% earned by the assessee was not sustainable in law and facts.
The ITAT restricted the addition to the extent of 2% of alleged bogus purchases.