Genuineness of transaction continuing from preceding year can not be disapproved without cogent material
In a recent judgment, the Bombay ITAT has held that genuineness of the transaction continuing from preceding year can not be disapproved merely based on information received from the Investigation Wing
ABCAUS Case Law Citation:
ABCAUS 4022 (2024) (05) ITAT
In the instant case, the Income Tax Department had challenged the order passed by the CIT(A) in deleting addition made on account of alleged bogus purchases made by the assessee
The assessee was engaged in the business of trading and distribution. In formation was received from the Investigation Wing that the assessee had received funds from another company which is an accommodation entry provider and not engaged in genuine business activity.
A notice u/s 148 of the Act was issued and proceedings u/s 147 of the Act were initiated. As per the information received from the Investigation Wing, the entry provider did not have any actual business or financial creditworthiness and was engaged in providing accommodation entry in return of commission which proved that the transaction reflected in the assessee’s account was a sham transaction.
In response to the show cause notice issued during the assessment proceedings, the assessee submitted that it had made purchased transactions and had not received any amount in the nature of accommodation entry, but has rather paid for the purchases made and for the opening balance as stood as on 1st April of the financial year. In this regard, the assessee also furnished confirmation of accounts and a copy of the bank statements.
However, the Assessing Officer vide order passed u/s 147 read with section 144B of the Act did not agree with the submission of the assessee and held that the assessee had failed to file documentary evidence that it had a business transaction with the said company. The AO further held that the said company did not have any actual business or financial creditworthiness and was merely an accommodation entry provider.
Accordingly, the AO concluded that the assessee had made a sham transaction, by taking bogus accommodation entries for purchases from to inflate the cost to reduce the profit for the year under consideration.
The CIT(A), vide impugned order, allowed the appeal filed by the assessee and deleted the impugned addition on the basis that the AO had not controverted any of the documents submitted by the assessee and the financials of the alleged entry provider showed that it was a genuine business entity having sufficient creditworthiness. The CIT(A) further held that the AO had not discharged its onus of disproving the transaction between the assessee and and the said company. The CIT(A) also noted that the AO, although made the impugned addition on bogus purchases, however, no comments had been made on the nature of sales made by the assessee.
The Tribunal observed that it was evident that as per the information received, the said accommodation entry provider was a corporate entity engaged in shipbreaking activity as well as trading in Iron and Steel material/scrap.
The Tribunal further observed that the assessee had made the purchases from the said company not only in the year under consideration but also in the preceding year. Thus the payment claimed to be made by the assessee was not only for the purchases made during the year but also the past purchases. Further, contrary to the claim of the AO that the said company had no actual business or financial creditworthiness, the audited financial statement showed that it had a considerable turnover and profit during the year under consideration.
Further, the Tribunal noted that the said company also had inventory of considerable amount. Also, the ITR acknowledgement showed that the said company for the relevant assessment year declared a reasonable income.
In view of the above, the Tribunal rejected the finding of the AO that the said company had no financial creditworthiness.
The Tribunal further observed that the Revenue had not disputed the sales made by the assessee and only considered the part purchase as bogus,
The Tribunal noted that the assessee was having regular transactions with the said company in respect of its business of trading in Iron and Steel. The Tribunal further agreed with the findings of the CIT(A) that the AO had neither reproduced the statement of the director of the said company nor had highlighted the part wherein it is stated that the assessee was the beneficiary of bogus purchases. The identity of the company had not been doubted by the Revenue and only the genuineness and creditworthiness of the purchases had been disputed by the Revenue.
The Tribunal opined that since, the assessee had made the purchases from the said company therefore, the examination of the creditworthiness of of the said company was of no relevance. On the other hand, the assessee had furnished sufficient documents to prove its financial creditworthiness which had not been disputed by the Revenue.
The Tribunal further observed that apart from placing reliance on the information received from the Investigation Wing, the Revenue had not brought any material on record, not even an iota of aforesaid information, to disprove the genuineness of the transaction which was continuing from the preceding year.
Accordingly, the appeal of the Revenue was dismissed.
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