Purchase not bogus merely for non-appearance of supplier
Merely non-appearance of the supplier in absence of any other corroborate evidence cannot be a basis to justify the stand of the Revenue that the transaction of purchase is bogus-ITAT
ABCAUS Case Law Citation:
ABCAUS 1212 (2017) (04) ITAT
The appellant assessee company was aggrieved by the order of the Commissioner of Income Tax (Appeals) in sustaining trading addition of Rs. 13,39,969/- made on account of purchase alleged as bogus.
Assessment Year : 2007-08
Date/Month of Pronouncement: April, 2017
Important Case Laws Cited/relied upon:
DCIT vs Gems Paradise
M/s Sambhav Gems Ltd Vs ACIT
M/s Vaibhav Gems Ltd Vs ACIT
Shri Badri Narain Modi Vs DCIT
M/s Shree Narain International Vs ACIT
Shri Paras Mal Jain Vs DCIT
Brief Facts of the Case:
The appellant assessee was a partnership firm. During the course of assessment proceedings for AY 2008-09, the Assessing Officer (‘AO’) called information u/s 133(6) from one creditor with outstanding credit balance of more then Rs. 10 lacs, summons were issued u/s 131 of the Income Tax Act, 1961 (‘the Act’) calling for the personal appearance of the said party.
On non-compliance by the creditor, the assessee was asked to produce the said party along with certain documents. However, as the assessee could not produce the said party, the entire purchase transaction was held to be non genuine and the entire purchases was treated as bogus and added to the income of the assessee.
The assessee carried the matter in appeal before CIT(A). During the course of appellate proceeding the appellant provided statement of accounts, bills signed by the supplier, confirmation of account by the supplier. The CIT(A) without going into the merits of the case noted that since purchases do not pertain to AY 2008-09 but pertain to previous A.Y 2007-08, the disallowance of purchases was deleted.
The Revenue did not appeal against the said order passed by the CIT(A) for AY 2008-09. However, based on the said findings of the CIT(A), the assessment proceedings for AY 2007-08 were reopened by issuance of notice u/s 148 of the Act and thereafter the reassessment was completed bringing the amount of purchase alleged as bogus to tax in the AY 2007-08.
The AO, in his reassessment order stated that the assessee had claimed to have made purchases amounting to Rs. 13,39,969/- from the said creditor but on examination of the details furnished by the assessee, it was observed that though the assessee had debited purchases, no payment against those purchases had been made to the party till the year end.
During the course of re-assessment proceedings, the assessee was asked to produce the said party for examination so that the genuineness of the transaction can be ascertained. However, the assessee vide letter date submitted that the purchases were genuine and the assessee was not in position to present the party for verification. The assessee requested AO to complete the assessment proceedings. The Assessing Officer finally held that the assessee was accorded ample opportunity to produce the party so as to establish genuineness of the transactions claimed to have been made with the said party. However, the assessee failed to prove the genuineness of the expenses claimed by it inspite of providing all the reasonable opportunity. The AO finally held that in view of conclusive evidence brought on record, it could be safely held that the purchases debited by the assessee as payable to creditor were bogus which deserved to be disallowed and was added back to the declared income to the assessee.
Being aggrieved, the assessee carried the matter in appeal before the CIT(A) who confirmed the disallowance.
Contentions of the appellant assessee:
It was contended that the Books of accounts of appellant were audited, vouched and verifiable. Books of accounts had not been rejected u/s 145 of the Act and trading results, Exports Turnover, Gross Profit, Opening stock, Closing Stock etc had been accepted as it is without any addition/disallowance.
It was submitted that the additions for bogus purchases had been made on the ground that it did not produced supplier for verification before the AO. However, the supplier could not be produced as the supplier was from other city and denied to visit for this purpose and he replied that he had sent requisite confirmation by registered post.
It was submitted that the amount outstanding against supplier had been paid by account payee cheque in April, May, 2015 and now there was no outstanding against the supplier. It was contended that the material purchased from the supplier had been exported and same had not been doubted by the learned AO.
It was submitted that the Gross Profit (GP) Rate was higher than preceeding year. Also Export turnover during the AY 2007-08 was higher than Turnover of and GP Rate in the preceeding assessment year i.e. 2006-07.
That in AY 2008-09 and 2010-11 in the appellant’s own case, addition for bogus purchases was deleted and the appeal was allowed by the ITAT.
Observations made by the Tribunal:
The Tribunal noted that the Assessing Officer had blindly followed the findings given in assessment proceedings for A.Y for 2008-09 while bringing the alleged bogus purchase transaction to tax in the year under consideration. In AY 2008-09, other transactions were held to be bogus in nature by the AO and subsequently, even the said transactions had not been held as bogus and additions were ultimately deleted by the ITAT.
It was observed that the AO had referred to certain conclusive evidences brought on record to treat the purchases as bogus but no such evidence had been brought on record by the AO either during the course of assessment proceedings for AY 2008-09 or during the reassessment proceedings for the AY 2007-08. The only grievance of the AO was that the assessee had failed to produce the party so as to establish genuineness of the transaction and secondly, no payment had been made to the party till the year end.
The Tribunal observed that the CIT(A) while confirming the disallowance had stated that though confirmation has been obtained from the sundry creditor, the simple confirmation was not sufficient to establish the fact of purchase without elaborating what more was required from the assessee to justify its claim.
The Tribunal noted that the supplier was outstationed and had denied travelling at the same time, he had sent its requisite confirmation directly to the department by the registered post. Further the amount outstanding against the said purchases had been paid by account payee cheque in April and May, 2015 and now there was no outstanding amount against the said supplier.
Also, there was no finding by the Assessing Officer as to reasons for non acceptance of the submission of the assessee that he materials purchased form part of the turnover and those had been exported. In absence of that, the stand taken by the Revenue could not be accepted.
The Tribunal stated that merely non-appearance of the supplier, in absence of any other corroborate evidence could not be a basis to justify the stand of the Revenue that the transaction of purchase was bogus.
It was held that the purchases made not been proved to be bogus and the said additions could not be sustained in the eye of law in absence of any conclusive evidence brought on record. In effect, the ground of appeal taken by the assessee was allowed.