2018 (5) TMI 131 - AT - Income Tax

Tribunal rules in favor of assessee in bogus purchases case, emphasizing need for thorough inquiries

The Tribunal allowed the appeal, ruling in favor of the assessee in a case involving allegations of bogus purchases. The Tribunal held that the assessee ... Addition of bogus purchases - Held that:- The assessee has proved the genuineness of the transactions and the parties suppliers had not only appeared before the AO but they had also filed affidavits confirming the sale of goods. Therefore, reversing his order, we decide first effective ground of appeal (GOA) in favour of the assessee. Issues Involved:1. Bogus Purchases2. Genuineness of Transactions3. Reassessment Proceedings4. Application of Jurisdictional High Court Judgments5. Supplier Affidavits and ConfirmationIssue-wise Detailed Analysis:1. Bogus Purchases:The primary issue revolves around the allegation of bogus purchases made by the assessee-company, which is engaged in the business of manufacturing jewelry. The Assessing Officer (AO) called for details and evidence of purchases from three parties controlled by the Rajesh Jain Group. During the search and seizure proceedings, it was admitted that the group was merely providing accommodation entries. Despite the suppliers providing book entries, bills, and bank statements to support their claims, the AO rejected the explanation and added Rs. 14.99 Crores to the assessee's income.2. Genuineness of Transactions:During appellate proceedings, the assessee provided affidavits from the suppliers and relied on various judicial decisions against the additions for bogus purchases. The Commissioner of Income Tax (Appeals) [CIT(A)] partly allowed the appeal, holding that the entire purchase addition was unsustainable. He relied on the jurisdictional High Court judgment in Nikunj Eximp Enterprises (372 ITR 619) and restricted the addition to 12.5% of the purchases, confirming Rs. 1,75,04,222/- and deleting Rs. 12,25,29,553/-.3. Reassessment Proceedings:The Tribunal recalled its earlier order regarding the issue of bogus purchases and restored the matter to the AO for fresh adjudication. During the hearing, the Authorized Representative (AR) for the assessee argued that all necessary documents proving the genuineness of the transactions were produced, payments were made through banking channels, and the suppliers had confirmed the transactions during remand proceedings.4. Application of Jurisdictional High Court Judgments:The CIT(A) relied on the Gujarat High Court judgment in the case of Simit P Sheth (356 ITR 451) to justify restricting the addition to 12.5% of the purchases. The Tribunal referenced the case of Romila M. Nagpal, where under similar circumstances, the addition confirmed by the First Appellate Authority (FAA) was deleted.5. Supplier Affidavits and Confirmation:The Tribunal noted that the suppliers had appeared before the AO and admitted to selling goods to the assessee, filing affidavits confirming the transactions. The Tribunal emphasized the difference between issuing bogus bills and issuing accommodation bills to a particular party. The suppliers were paying VAT and filing their income tax returns, and in response to notices issued under section 133(6) of the Act, they admitted the genuineness of the transactions.Conclusion:The Tribunal concluded that the FAA was not justified in partially confirming the addition. The assessee had proven the genuineness of the transactions, and the suppliers had confirmed the sale of goods. Therefore, the Tribunal reversed the FAA's order and decided the effective ground of appeal in favor of the assessee, allowing the appeal. The judgment emphasized the importance of independent verification and the necessity for the AO to conduct thorough inquiries before making additions based on information from external sources. The order was pronounced in the open court on 13th April 2018.