|CORAM:||R. C. Sharma (AM), Sandeep Gosain (JM)|
|CATCH WORDS:||Bogus purchases, Bogus Sales, unexplained expenditure|
|DATE:||May 5, 2017 (Date of pronouncement)|
|DATE:||May 23, 2017 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|S. 69C Bogus purchases: (i) The AO is not entitled to treat the purchases as bogus merely on the basis of information from the sales-tax dept. He has to make independent inquiry, (ii) Fact that the vendors did not respond to s. 133(6) notices & the assessee did not produce them is not sufficient if the documentation is in order and payments are through banking channels|
(i) The basis on which AO disallowed the alleged bogus purchases is the non-appearance of the suppliers before the AO to verify the purchases. In this regard we found 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. Several decisions cited in support of the said argument are Nikunj Eximp Enterprises (P.) Ltd. v. CIT 216 Taxman 171 (Bom.), CIT v. Nangalia Fabrics (P.) Ltd. 220 Taxmann 17 (Guj.), CIT v. M.K. Bros. 163 ITR 249 (Guj.), Asstt. CIT v. Akruti Dyeing & Printing Mills (P.) Ltd. [Tax Appeal No. 997 of 2008, dated 27/01/2009],CIT v. Veekay Prints (P.) Ltd. [Tax Appeal No. 2557 of 2010, dated. 1/2/2012], Diagnostics v. CIT 334 ITR 111 (Cal.), ITO v. Totaram B. Sharma [Tax Appeal Nos. 1344/2008 & 1355/2008, dated 9-2-2010], Dy. CIT v. Adinath Industries  252 ITR 476 (Guj.), CIT v. Precious Jewels Corpn. 17 taxmann.com 264 (Raj.), CIT v. Rajesh P. Soni [Tax Appeal No.1107 of 2006, dated 27-2-2012.
(ii) On identical facts and circumstances, the Hon’ble Jurisdictional High Court as well as the Tribunal, Mumbai Bench, has deleted the addition made under section 69C, in the following cases:-
(a) CIT v/s Nikunj Eximp Enterprise Pvt. Ltd. 372 ITR 619 (Bom.); (b) A”CIT v/s Tarla R. Shah, ITA no.5295/Mum./2013, dated 2nd February 2016; and (c) Shri Harilal Chunilal Jain v/s ITO, ITA no.4547/Mum./2014, dated 1 January 2016.
(iii) It is evident from the assessment order that on the basis of information obtained from the Sales Tax Department, Assessing Officer issued notices under section 133(6). As the assessee failed to produce the concerned parties, the Assessing Officer, 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. Though, it may be a fact that assessee was not able to produce the concerned parties before the Assessing Officer, for whatever may be the reason, fact remains 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 is also a fact on record that the Assessing Officer has not doubted the sales effected by the assessee. Thus, it is logical to conclude that without corresponding purchases being effected the assessee could not have made the sales. Moreover, the Assessing Officer has not brought any material on record to conclusively establish the fact that purchases are 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 Assessing Officer had any doubt with regard to purchases made, it was incumbent upon him to make further investigation to ascertain the genuineness of the transactions. 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. As the Assessing Officer has failed to make any enquiry or investigation to prove the fact that the purchase transactions are not genuine whereas the assessee has brought documentary evidences on record to prove genuineness of such transactions which are not found to be fabricated or non-genuine, the action of the Assessing Officer in ignoring them cannot be accepted. When the payment to the concerned parties are through proper banking channel and there is 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 is not sustainable in law and facts. Keeping in view the totality of facts and circumstances of the case, we are inclined to restrict the addition to the extent of 2% of such purchases. We direct accordingly.