2014 (8) TMI 807 - AT - Income Tax

Tax authority disallowed purchase additions over mere suspicion; AS-9 supports advances not fully taxable solely due to TDS

ITAT MUMBAI - AT ruled against the revenue. The tribunal held the AO's additions for alleged non-genuine purchases unsustainable where the inquiry stopped ... Non-genuine purchases - Documentary evidences ignored - Supplier declared as hawala dealer - suppression of sales - Held that:- AO had made the addition as one of the suppliers was declared a hawala dealer by the VAT Department - it was a good starting point for making further investigation and take it to logical end - he left the job at initial point itself - Suspicion of highest degree cannot take place of evidence - He could have called for the details of the bank accounts of the suppliers to find out as whether there was any immediate cash withdrawal from their account - no such exercise was done - Transportation of good to the site is one of the deciding factor to be considered for resolving the issue - The FAA has given a finding of fact that part of the goods received by the assessee was forming part of closing stock - there is nothing, in the order of the AO, about the cash trail - proof of movement of goods is not in doubt – thus, the order of the FAA does not suffer from any legal infirmity and there are not sufficient evidence on file to endorse the view taken by the AO – Decided against Revenue. Suppression of sales – Amount credited in next year - Taxability on the basis of TDS u/s 198 – Held that:- Accounting Standard-9 (AS-9) envisages that the revenue from sale/service should be recognized as per the prescribed manner - the advance received by the assessee cannot be treated income and he had correctly shown the balance amount of ₹ 1.14 Crores for the AY-2010-11 - deduction of tax for the payment is one of the deciding facts for recognize the revenue of a particular year - But TDS in itself does not mean that the whole amount mentioned in it should be taxed in a particular year deduction of tax and completion of assessment are two different things while finalizing the tax liability of the assessee and AO is required to take all the facts and circumstances of the case not only the TDS certificate – the order of the FAA with regard to the TDS does not suffer from legal infirmity – relying upon Income-tax Officer, Ward-4(3), Ahmedabad Versus Hans Road Carriers (P.) Ltd.[2010 (8) TMI 756 - ITAT AHMEDABAD] - the FAA had directed the AO to include ₹ 3.21 Lakhs, being TDS on the advance of ₹ 1.41 Crores, to be included as a part of the turnover in terms of section 198 – Decided against Revenue. Issues Involved:1. Deletion of addition on account of non-genuine purchases.2. Deletion of addition on account of suppression of sales.Detailed Analysis:1. Deletion of Addition on Account of Non-Genuine Purchases:The Assessing Officer (AO) challenged the order of the CIT(A) directing the deletion of an addition of Rs. 13,69,417/- on account of non-genuine purchases. The AO argued that the assessee failed to substantiate the claim despite ample opportunity and highlighted that one supplier, M/s. N. S. Enterprises, was listed as a 'Hawala Dealer' by the Maharashtra Sales Tax Department. The AO had issued notices under section 133(6) to sundry creditors, which were returned undelivered. The assessee provided sample bills and bank payment details, but the AO found discrepancies, particularly with the TIN numbers, and concluded the purchases were bogus.On appeal, the First Appellate Authority (FAA) considered the documentary evidence provided by the assessee, including invoices, bank certificates, and consignment receipts. The FAA held that the AO did not provide independent and reliable evidence to prove the non-genuineness of the purchases and deleted the addition.Upon further appeal, the Tribunal noted that the AO's reliance on the 'Hawala Dealer' listing was insufficient without further investigation. The Tribunal emphasized that suspicion alone could not replace evidence and pointed out that the AO failed to investigate the suppliers' bank accounts for immediate cash withdrawals. The Tribunal upheld the FAA's decision, confirming that the addition lacked sufficient evidence and did not suffer from legal infirmity.2. Deletion of Addition on Account of Suppression of Sales:The AO also contested the deletion of an addition of Rs. 1,53,22,875/- for suppression of sales. The AO found discrepancies in the turnover reconciliation and argued that the assessee claimed TDS for the full amount received from M/s. Jain Irrigation System Ltd. (JISL) but only reported part of it as income, treating the rest as advance.The FAA, on appeal, found that the assessee received a work order in December 2008 and had correctly treated part of the amount as advance, which was adjusted in the subsequent year. The FAA cited Accounting Standard-9 (AS-9) on revenue recognition, concluding that the advance was a liability and not income for the year under appeal. The FAA also referred to the Hans Road Carriers Pvt. Ltd. case, which supported the treatment of advances as liabilities.The Tribunal agreed with the FAA, emphasizing that TDS alone does not determine the taxable income for a particular year. The Tribunal noted that the assessee had complied with AS-9 and had correctly shown the advance as income in the subsequent year. The Tribunal upheld the FAA's decision, ruling that the addition was not justified and the order did not suffer from legal infirmity.Conclusion:The Tribunal dismissed the appeal filed by the AO, upholding the FAA's decisions on both issues. The order was pronounced in the open court on 20th August 2014.