2014 (9) TMI 549 - HC - Income Tax

High Court upholds department in appeals against ITAT orders on bogus purchases. Emphasizes genuine transactions and proper documentation.

Asst. Commissioner of Income Tax-I Versus Shanti Swarup Jain

The High Court ruled in favor of the department in appeals against ITAT orders for assessment years 2008-09 and 2009-10 concerning purchases from M/s ... Genuineness of purchases - Whether the liabilities/purchase pertaining to M/s Gopal Enterprises is genuine – Held that:- Sri Ram Gopal Sharma, proprietor of M/s Gopal Enterprises stated that he made the purchases from the local market without any bill - He was not having any vouchers - from last one year, he is not doing any business and only for the year 2007-08 he had received a payment of ₹ 7,50,000 - He has nothing to do with the business of the assessee, so the liability shown to the assessee for ₹ 31,18,137/- is not connected with him - he clearly stated that no money is due on the assessee - Sri Ram Gopal Sharma is doing independent business - He is running a dummy business - He is a proprietor of a firm which is not functioning for the last one year - the AO rightly rejected the books of account and made the additions on estimate basis - jugglery of book entries has been played - Both the orders of AO appears reasonable, where he has rightly made the additions pertaining to the bogus purchases – the order of the Tribunal is set aside – Decided in favour of revenue. Issues:Appeals against ITAT orders for assessment years 2008-09 and 2009-10 regarding purchases from M/s Gopal Enterprises.Analysis:The High Court heard appeals by the department against ITAT orders for assessment years 2008-09 and 2009-10 concerning purchases from M/s Gopal Enterprises. The main question was the genuineness of liabilities/purchases from M/s Gopal Enterprises. The AO treated the purchases as bogus, leading to additions in the assessment years under consideration. The CIT(A) confirmed the addition for 2008-09 but deleted it for 2009-10. However, the Tribunal deleted the additions for both years, prompting the department to file the present appeals.During the proceedings, the department argued that the purchases were bogus as the proprietor of M/s Gopal Enterprises admitted being an employee of the assessee's brother and failed to provide business details. The department contended that the assessee did not substantiate the purchases' genuineness. On the other hand, the assessee's counsel justified the Tribunal's orders, highlighting improved trading results and discrepancies in the AO's findings regarding payments and outstanding amounts.The Court noted that the proprietor of M/s Gopal Enterprises admitted to making purchases without bills and stated he was not involved in the assessee's business, indicating no dues from the assessee. It was revealed that the proprietor ran a dummy business not operational for a year, leading the AO to reject the accounts and make additions on an estimated basis. The Court found the AO's decisions reasonable, considering the circumstances and the book entry manipulations, setting aside the Tribunal's orders and reinstating the AO's orders.The Court ruled in favor of the department, allowing both appeals. The decision emphasized the importance of genuine transactions and the consequences of inadequate documentation and business practices in tax assessments.