Tribunal rules in favor of assessee on purchase genuineness and advisory service expenses

The Tribunal allowed the assessee's appeal regarding the genuineness of purchases from SRDL and KIPL, directing the AO to allow the expenditure claims. The Tribunal dismissed the revenue's appeal concerning advisory service expenses paid to SREI, emphasizing that the disallowances were based on suspicion and that the assessee provided sufficient evidence to support the claims. The order was pronounced on 10th May 2019.

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Issues Involved:
1. Dismissal of Ground No. 1 of the assessee’s appeal.
2. Dispute regarding the genuineness of purchases from Sundha Road Developers Pvt. Ltd. (SRDL) and Khush Infratech Pvt. Ltd. (KIPL).
3. Deletion of addition for advisory service expenses paid to SREI Infrastructure Finance Ltd. (SREI).

Issue-wise Detailed Analysis:

1. Dismissal of Ground No. 1 of the Assessee’s Appeal:
The assessee did not press Ground No. 1, which was a legal issue. Consequently, it was dismissed.

2. Dispute Regarding Purchases from SRDL and KIPL:
The assessee and the revenue both appealed against the partial relief granted by the CIT(A) regarding the purchases from SRDL and KIPL. The AO had disallowed Rs. 36,29,19,268/- as bogus expenses, suspecting the genuineness of the purchases. The AO issued notices under Section 133(6) of the Income-tax Act, 1961 to SRDL and KIPL, requesting various documents. Both companies submitted their income tax returns, ledger accounts, and confirmation of transactions. Despite these submissions, the AO considered the responses insufficient and treated the purchases as bogus due to the identical nature of the replies and the failure to produce directors for verification.

The CIT(A) provided partial relief by deleting the addition of Rs. 6,66,210/- (SRDL) and Rs. 3,73,690/- (KIPL), recognizing the genuineness of the purchases for the bills produced. The Tribunal noted that the assessee had a substantial turnover of Rs. 606.49 crores, with a gross profit percentage of 19.67%, the highest in the past two years. The books of accounts were audited, and no defects were found. Payments were made through banking channels, and the parties confirmed the transactions. The Tribunal concluded that the disallowance was based on suspicion and allowed the assessee’s appeal, directing the AO to allow the expenditure claims for purchases from SRDL and KIPL.

3. Deletion of Addition for Advisory Service Expenses Paid to SREI:
The AO disallowed Rs. 35,42,12,560/- paid to SREI for advisory services, suspecting the genuineness of the expenses due to incomplete details provided by SREI. The assessee submitted various documents, including ledger accounts, bills, agreements, and TDS certificates, to support the claim. The CIT(A) found that SREI confirmed providing advisory services and that payments were made by account payee cheques or RTGS. The CIT(A) also noted that SREI’s turnover exceeded Rs. 3260 crores and that it had a reputable clientele, including government agencies. The CIT(A) reconciled the discrepancies pointed out by the AO and deleted the disallowance, finding the expenses genuine.

The Tribunal agreed with the CIT(A)’s findings, noting that the AO did not specify which details were missing. The Tribunal confirmed the CIT(A)’s order, dismissing the revenue’s appeal.

Conclusion:
The Tribunal allowed the assessee’s appeal regarding the genuineness of purchases from SRDL and KIPL and dismissed the revenue’s appeal concerning the advisory service expenses paid to SREI. The Tribunal emphasized that the disallowances were based on suspicion and that the assessee had provided sufficient evidence to support the claims. The order was pronounced in the open court on 10th May 2019.

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