Revenue appeal upheld, CIT(A)'s decision reversed on bogus purchases for Assessment Year 2003-04.

The Revenue's appeal was allowed, setting aside the CIT(A)'s order and restoring the AO's addition of Rs. 18,32,319/- on account of bogus purchases for the Assessment Year 2003-04. The Tribunal found that the assessee failed to establish the genuineness of the payments made to the ultimate seller of the goods, leading to the reversal of the CIT(A)'s decision.

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Issues Involved:
1. Deletion of addition on account of bogus purchases amounting to Rs. 18,32,319/-

Issue-wise Detailed Analysis:

1. Deletion of addition on account of bogus purchases amounting to Rs. 18,32,319/-:

The appeal was filed by the Revenue against the order of the CIT(A)-V, Surat, which deleted the addition of Rs. 18,32,319/- made by the AO on account of bogus purchases for the Assessment Year 2003-04.

Facts of the Case:
The assessee, engaged in the trading of grey cloth, filed a return declaring a total income of Rs. 1,09,218/-. The case was selected for scrutiny, and the AO made an addition of Rs. 18,32,319/- on account of bogus purchases, determining the income at Rs. 19,55,340/-.

First Appellate Authority's Decision:
The learned CIT(A) deleted the addition. The assessee's appeal to the Tribunal for the Assessment Year 2001-02 resulted in the Tribunal setting aside the issue for re-adjudication by the AO. The Tribunal directed the AO to re-examine the issue in light of its order for the Assessment Year 2001-02.

Tribunal's Directions in the First Round:
The Tribunal observed that the AO did not comment on the factual correctness of the assessee's submissions regarding maintaining a day-to-day quantitative register and the sale of the same goods. The Tribunal directed the AO to ascertain who encashed the cheque and to verify the actual receipt of goods. If the goods were received and the seller was not found at the given address, a doubt could be raised about the purchase rate. The Tribunal set aside the orders of the authorities below and restored the matter to the AO for re-examination.

AO's Actions on Remand:
The AO issued a notice under section 142(1) and called for details regarding the cheques issued by the assessee for purchases. The AO found that some cheques were endorsed to other parties and not deposited in the sellers' accounts. The AO disallowed 25% of the total purchases, amounting to Rs. 18,32,319/-, as the assessee failed to establish a correlation between the purchases and the payments made to the sellers.

CIT(A)'s Findings:
The CIT(A) deleted the addition, stating:
- The mandatory requirement for payment by account payee cheque came into effect from 13.7.2006, whereas the case pertained to A.Y.2003-04.
- No defect was found in the books of account, including the stock register.
- The AO did not find any instance where the cheques issued by the assessee were encashed on his behalf.
- No addition was made in a similar case for A.Y.2001-02.

Revenue's Argument:
The Revenue argued that the assessee failed to fulfill the Tribunal's directions, and the AO rightly made the addition.

Assessee's Argument:
The assessee argued that the accounts were audited, a stock register was maintained, and the AO did not dispute the sales. The assessee submitted that the purchases were genuine and the payments were made to the vendors.

Tribunal's Analysis:
The Tribunal noted that the assessee failed to establish a reconciliation between the payments and the ultimate recipient of the amounts. The Tribunal observed that the AO recognized the purchases but doubted the rate at which the goods were purchased. The AO found that some cheques were routed through other proprietary concerns of the assessee and were withdrawn by the proprietor. The assessee did not produce purchase bills, claiming they were destroyed in a flood, but did not provide evidence of insurance claims or FIRs.

The Tribunal concluded that the assessee failed to establish how the payments were made to the ultimate seller of the goods. The CIT(A) erred in deleting the addition as the assessee did not demonstrate the genuineness of the payments. The Tribunal set aside the order of the CIT(A) and restored that of the AO.

Conclusion:
The appeal of the Revenue was allowed, and the order of the CIT(A) was set aside, restoring the AO's addition of Rs. 18,32,319/- on account of bogus purchases.

Order Pronouncement:
The order was pronounced in the Court on 17th July, 2015, at Ahmedabad.

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