2020 (2) TMI 464 - HC - Income Tax

Tax Tribunal's Decision Upheld: Evidence Proven, Purchases Genuine; Appeal Dismissed for Lack of Substantial Legal Question.

The HC upheld the Tribunal's decision, affirming the deletion of the addition under Section 69C of the IT Act, 1961, made by the AO. The Tribunal found ... Unexplained expenditure - deeming provision in Section 69C - onus on Revenue to prove that income belongs to the assessee - adequacy of documentary evidence of purchases (invoices, stock ledgers, bank payments) - reliance on third party information and sworn statements without further enquiry - duty to cause further enquiries and afford opportunity to cross examine - payments through banking channels as indicator of genuinenessUnexplained expenditure - deeming provision in Section 69C - Validity of the addition under Section 69C treating purchases as unexplained expenditure and deeming them as income of the assessee. - HELD THAT: - Section 69C is a deeming provision which permits treating expenditure as income where the assessee offers no explanation or the explanation is not satisfactory to the Assessing Officer. The Tribunal and the first appellate authority found that the assessee produced purchase bills, sale/purchase invoices, challan cum tax invoices, stock ledger extracts and bank statements showing payments through banking channels. On the material on record the authorities concluded that the Assessing Officer did not bring forward any material evidence to conclusively prove the purchases were bogus, and therefore the addition under Section 69C could not be sustained. The High Court agreed with the concurrent factual findings of the lower authorities and found no substantial question of law arising from those findings. [Paras 15, 16, 17, 18, 20]Addition under Section 69C treating the purchases as unexplained expenditure and deeming them as income is not sustained; the deletion of the addition is upheld.Reliance on third party information and sworn statements without further enquiry - duty to cause further enquiries and afford opportunity to cross examine - Whether the Assessing Officer could rely solely on information from the Sales Tax Department and third party sworn statements, without causing further enquiries or affording opportunity to cross examine, to hold purchases as bogus. - HELD THAT: - The Tribunal held that mere reliance on information obtained from the Sales Tax Department and on statements/affidavits of third parties, without causing further enquiries or giving the assessee an opportunity to test those statements (including cross examination), does not suffice to establish that purchases were bogus. Where the Assessing Officer entertained doubts, it was incumbent on him to make further enquiries to ascertain genuineness of the transactions. The High Court agreed with this legal and procedural conclusion as applied to the facts of the case. [Paras 17, 18]Assessing Officer's reliance on third party information without further enquiries or opportunity for cross examination was improper; therefore the addition could not be sustained on that basis.Adequacy of documentary evidence of purchases (invoices, stock ledgers, bank payments) - payments through banking channels as indicator of genuineness - Whether the documentary evidence produced by the assessee (invoices, stock ledgers, bank statements showing payments) was sufficient to establish the genuineness of purchases. - HELD THAT: - The first appellate authority and the Tribunal found that the assessee furnished corroborative documentary evidence - copies of purchase bills and invoices, stock ledger entries showing entry/exit of materials, and bank statements evidencing payments through normal banking channels - and that there was no material to show that payments were routed back to the assessee. In that factual matrix the authorities concluded that such documentary evidence established the genuineness of purchases and negated the Assessing Officer's addition under Section 69C. The High Court endorsed these concurrent findings of fact. [Paras 16, 17]Documentary evidence including banking channel payments was found sufficient to establish genuineness of the purchases; therefore the addition was rightly deleted.Final Conclusion: The concurrent factual findings of the Tribunal and the CIT(A) that the assessee established genuineness of the purchases by documentary evidence and that the Assessing Officer could not rely solely on third party information without further enquiries are upheld; no substantial question of law arises and the revenue's appeal is dismissed. Issues Involved:1. Applicability of Section 69C of the Income Tax Act, 1961 in the case of bogus purchases or sales.2. Requirement for the Assessing Officer to limit himself to the documents provided by the assessee when purchases are non-genuine.3. Necessity for the Assessing Officer to conduct further inquiries to ascertain the genuineness of transactions under Section 69C.Issue-wise Detailed Analysis:1. Applicability of Section 69C of the Income Tax Act, 1961 in the case of bogus purchases or sales:The primary issue before the Court was the addition made by the Assessing Officer (AO) to the income of the assessee under Section 69C of the Act, which was subsequently deleted by the first appellate authority and affirmed by the Tribunal. Section 69C pertains to unexplained expenditure, where if an assessee incurs any expenditure and fails to explain the source or provides an unsatisfactory explanation, the amount is deemed to be the income of the assessee. The Tribunal found that the assessee had provided sufficient documentary evidence, such as purchase bills, sale invoices, stock ledger entries, and bank statements showing payments through regular banking channels, to establish the genuineness of the purchases. The AO's reliance on information from the Sales Tax Department and statements from third parties without affording the assessee an opportunity to cross-examine those parties was deemed insufficient to treat the purchases as bogus.2. Requirement for the Assessing Officer to limit himself to the documents provided by the assessee when purchases are non-genuine:The Tribunal noted that the AO had not doubted the sales and stock records maintained by the assessee. The first appellate authority highlighted that all payments against the purchases were made through account payee cheques, establishing the source of expenditure beyond doubt. The Tribunal emphasized that the AO failed to bring any material evidence to conclusively prove that the purchases were bogus. Mere reliance on third-party statements and non-response to notices under Section 133(6) of the Act was not enough to treat the purchases as bogus. The Tribunal held that the AO should have conducted further inquiries to ascertain the genuineness of the transactions instead of solely relying on the documents provided by the assessee.3. Necessity for the Assessing Officer to conduct further inquiries to ascertain the genuineness of transactions under Section 69C:The Tribunal stressed that if the AO doubted the genuineness of the purchases, it was incumbent upon him to conduct further inquiries. The AO's failure to do so and his reliance on information from the Sales Tax Department without allowing the assessee to cross-examine the third parties led to the conclusion that the addition under Section 69C was unsustainable. The Tribunal's decision was in line with the Gujarat High Court's ruling in Krishna Textiles v/s. CIT, which placed the onus on the revenue to prove that the income belonged to the assessee. The Tribunal also referenced the Bombay High Court's decision in Ashish International, which held that the genuineness of statements relied upon by the revenue must be established, especially when the assessee disputes their correctness and seeks an opportunity to cross-examine the witnesses.Conclusion:The High Court agreed with the Tribunal's findings, affirming that the AO did not conduct the necessary inquiries to establish the purchases as bogus. The Court referenced its previous decision in Commissioner of Income Tax -1, Mumbai v/s. Nikunj Eximp Enterprises(P.) Ltd., where it held that the non-appearance of suppliers before the AO does not automatically imply that the purchases were not made by the assessee. Consequently, the Court found no substantial question of law arising from the Tribunal's order and dismissed the appeal, upholding the deletion of the addition under Section 69C.