2013 (8) TMI 591 - AT - Income Tax

Tribunal overturns AO's additions on bogus purchases, upholds CIT(A)'s decision. Departmental appeal and cross-objection dismissed.

ACIT, Circle-1 Versus Shri Manohar Lal Bhawani Prop. M/s. Awatram & Sons

The Tribunal upheld the CIT(A)'s decision to delete substantial additions made by the AO on account of bogus purchases/creditors and discrepancies in the ... Bogus purchase - AO letters u/s. 133(6) have been sent to various parties on the address made available with the assessee. Out of total such letters, 32 have been received back un-served. - Held that:- AO has not issued the letters u/s. 133(6) on the correct address supplied by the assessee. Therefore, no fault could be found with the explanation of the assessee. The assessee has given complete details of the parties from whom the purchases have been made. Purchase bills are supported by bank statements which have not been doubted by the AO. The account books of the assessee are audited. Sales are accepted by the AO which have been accepted by the Sales Tax Department also in their assessment. Profit rate of assessee is better is compared to the earlier years. Therefore, there is no question of holding that the assessee made bogus purchases. All the purchases are recorded in the books of account - The assessee has satisfactorily reconciled the discrepancies in the accounts of the parties except for amount upheld by CIT - Decided against Revenue. Issues Involved:1. Deletion of addition on account of bogus purchases/creditors.2. Deletion of addition on account of discrepancies in the creditors' account.Detailed Analysis:1. Deletion of Addition on Account of Bogus Purchases/Creditors:The Revenue challenged the deletion of Rs.76,84,864/- out of Rs.83,44,318/- made by the AO on account of bogus purchases/creditors. The AO had sent letters under Section 133(6) to various parties, 32 of which were returned un-served. The AO inferred that the assessee provided wrong addresses and failed to prove the genuineness of the creditors, leading to the addition of Rs.83,44,318/-. The assessee contended that the AO did not provide the list of all parties and failed to supply copies of correspondence. The assessee had submitted purchase bills, bank statements, and other documents, which the AO did not dispute. The CIT(A) restricted the addition to Rs.6,59,454/- for transactions with M/s. Shiva Sarees, where the address was incomplete. The CIT(A) found that the AO issued letters to incorrect addresses and accepted the assessee's documentation for other parties.The Tribunal upheld the CIT(A)'s decision, noting that the AO did not issue letters to the correct addresses and the purchases were supported by bank statements and purchase bills. The sales were accepted by the Sales Tax Department, and the profit rate was consistent with previous years. Thus, the substantial addition was correctly deleted, and the addition of Rs.6,59,454/- was upheld due to the failure to explain the transaction with M/s. Shiva Sarees.2. Deletion of Addition on Account of Discrepancies in the Creditors' Account:The Revenue challenged the deletion of Rs.25,68,587/- out of Rs.28,21,452/- made by the AO due to discrepancies in the creditors' accounts. The AO noted discrepancies in the accounts of 33 parties and made the addition due to lack of proper reconciliation. The assessee argued that they had reconciled all accounts and provided details of purchases. The CIT(A) accepted the reconciliation for most parties but upheld an addition of Rs.2,52,865/- where the reconciliation was unsatisfactory.The Tribunal found no merit in the Revenue's appeal, as the assessee satisfactorily reconciled the discrepancies except for Rs.2,52,865/-. The Revenue did not provide evidence to contradict the CIT(A)'s findings, and the assessee failed to explain the remaining discrepancy. Thus, the Tribunal upheld the CIT(A)'s decision to delete the substantial addition and maintain the addition of Rs.2,52,865/-.Conclusion:The Tribunal dismissed both the departmental appeal and the cross-objection of the assessee. The CIT(A)'s decisions to delete substantial additions and uphold minor ones due to insufficient explanations were found to be correct and based on proper appreciation of facts and evidence. The order was pronounced in the open court.