M/s. Maruti Impex vs. JCIT (ITAT Mumbai)

DATE: March 9, 2016 (Date of pronouncement)
DATE: March 30, 2016 (Date of publication)
AY: 2009-10
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Bogus Purchases: Theory that transaction "defies human probabilities" cannot be applied to purchases in isolation but has to be applied to the entire transaction in the light of documentary evidence produced by the assessee

(i) The tax authorities have not accepted the claim of purchases of diamonds from TTPL on the reasoning that the said transaction defies the human probabilities. The tax authorities have, accordingly, rejected the various evidences furnished by the assessee in support of claim of purchases. We also notice that the tax authorities have arrived at such a conclusion only by considering the purchase transaction and did not prefer to examine the claim of export of same goods in the succeeding year and re-import of the same goods thereafter. In our view, the surrounding circumstances and human probabilities attached to a transaction should be examined by considering the transactions as a whole. Examination of part of transactions alone in the context of human probabilities/surrounding circumstances, some times, would give misleading results;

(ii) The assessee has furnished various documents before the assessing officer during the course of remand proceedings to support the claim of purchases. The assessee has also proved that the said purchases were available in stock by linking the closing stock available as at the year end with the relevant invoices. When the assessee is able to so link the closing stock with the purchase bills, the said claim should not have been rejected by Ld CIT(A) without examining the stock register and further without disproving the said claim by bringing any other credible material. If closing stock available with the assessee was not accepted as the materials purchased from TTPL, then the tax authorities should have pointed out that the closing stock represented some other purchases. The assessee has also shown that the said goods were exported subsequently. It is pertinent to note that the tax authorities have ignored the claim of export, since they have doubted the claim of purchases from TTPL. There should not be any doubt that a person cannot sell any goods without purchasing the same. In the instant case, the claim of sales in the succeeding year has not been doubted with or disproved. As a matter of fact, the sales cannot be disproved, since the assessee has exported the goods by obtaining clearances from RBI and Customs authorities. We have noticed that the assessing officer has suspected the correspondences exchanged between the assessee and the client, who imported the goods from the assessee, under the impression that those papers should have been fabricated and accordingly sent them for examination to CFSL, Hyderabad. According to Ld A.R, the assessing officer has since received report from CFSL and it has not given any adverse report against those documents, which fact has not been controverted by the revenue. Thus, one of the basis for suspecting the transactions has been proved wrong. When the evidences are available with the assessee and when the tax authorities have not brought any material to contradict the same, we are of the view that the tax authorities are not justified in rejecting the evidences furnished by the assessee to support the transactions of purchases.

(iii) The Hon’ble Jurisdictional Bombay High Court has considered an identical issue of allegation of bogus purchases in the case of CIT Vs. Nikunj Eximp Enterprieses Pvt Ltd (372 ITR 619). In the instant case also, the claim of the assessee is that the purchases made from TTPL was available as closing stock as at the year end and they were exported in the succeeding years. The fact that the assessee has exported the goods was not controverted. It is a known fact that the claim of export cannot be considered to be not-genuine, since the export cannot take place without clearance from Customs Authorities, another arm of Government of India. Hence, the claim of export has to be necessarily accepted on the basis of relevant documents. In the instant case also, the assessee has furnished the copies of purchase invoices, confirmation letters, copies of ledger accounts, copies of export bills, the details of re-import of the same and details of payment of customs duty on re-import, the details of purchase return. All these chronological events have not been disproved by the tax authorities.

(iv) In view of the foregoing discussions, we are of the view that there is no reason to suspect the claim of purchases of goods from TTPL, particularly when the assessee is able to support the said claim with documentary evidences, stock register, confirmations etc and more particularly in view of the fact that the assessee has exported the very same goods. In our view, the theory of human probability has been applied to only part of transactions and not to the whole round of transactions. In any case, it cannot be said that the claim of the assessee defies the human probabilities, when one examines the documents furnished by the assessee. Accordingly, we are of the view that the Ld CIT(A) was not justified in confirming the addition made by the AO. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the AO to delete the impugned addition.

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