ITAT allows appeal against bogus purchase addition after assessee proves transaction genuineness through bills and VAT returns

ITAT Ahmedabad allowed assessee's appeal against addition of profit element in alleged bogus purchases. Department relied on incriminating material from survey of accommodation entry provider M/s. HJM Fuels Pvt. Ltd to treat entire purchases as bogus. Assessee successfully challenged credibility of incriminating material and established genuineness of transactions through purchase bills, VAT returns, Form 26AS showing TCS collection, quantitative tally, and affidavit from HJM director confirming sales transactions worth Rs. 2.47 crores. AO admitted director's affidavit but failed to controvert assessee's contentions or provide reasons for accepting flawed incriminating material. ITAT held incriminating material lacked credibility and evidentiary value, finding no basis for treating purchases as bogus.

---

---

Issues Involved:
1. Improper Confirmation of Additions Despite Acceptance of Books of Accounts
2. Confirmation of Addition in Absence of Contradictory Evidence
3. Disregard for Documentary Evidence and Vendor Confirmation
4. Unjustified Double Taxation through Gross Profit-Based Addition

Issue-Wise Detailed Analysis:

1. Improper Confirmation of Additions Despite Acceptance of Books of Accounts:
The primary issue in the appeal pertains to the addition made to the income of the assessee of profit element embedded in the purchases held to be bogus. The quantum of purchases treated as bogus amounts to Rs. 2,47,76,349/-, and 10.46% of the same was estimated as the profit element embedded, resulting in an addition of Rs. 25,91,606/-. The assessee contended that the CIT(A) erroneously upheld this addition despite the formal acceptance of the Assessee's books of accounts under Section 145(3) of the Income Tax Act, 1961.

2. Confirmation of Addition in Absence of Contradictory Evidence:
The assessee argued that the addition of INR 25,91,606/- lacks substantiation through adverse documentary evidence against the Assessee. The Department's reliance on incriminating material found during a survey at M/s. HJM Fuels Pvt. Ltd. was questioned for its credibility and evidentiary value. The assessee had submitted various documents, including purchase bills, details of modes of goods delivery, and contra confirmation ledger of M/s. HJM Fuels Pvt. Ltd., which were not contradicted by the Revenue.

3. Disregard for Documentary Evidence and Vendor Confirmation:
The assessee provided documentary evidence and vendor confirmation to support the genuineness of the transactions. This included:
- Copy of purchase bills of M/s. HJM Fuels Pvt. Ltd.
- Details of modes of goods delivery and contra confirmation ledger
- Payments made via RTGS/Account Payee Cheques
- Copies of bank statements reflecting the payments
- Quantitative tally of purchases and sales
- VAT returns and TCS statements of HJM Fuels reflecting sales to the assessee
Despite these submissions, the Revenue authorities held the purchases as bogus, relying on the incriminating material which the assessee argued lacked credibility.

4. Unjustified Double Taxation through Gross Profit-Based Addition:
The assessee contended that the addition of Gross Profit at 10% on the purchase transactions led to inadvertent double taxation, as the income from subsequent sales had already been offered for taxation. The Tribunal found that the assessee had sufficiently discharged its onus of proving the genuineness of the purchases, and the incriminating material relied upon by the Revenue was not credible. The Tribunal noted that the Assessing Officer had admitted to the Director of M/s. HJM Fuels Pvt. Ltd. having filed an affidavit confirming the transactions and that the Assessing Officer did not point out any discrepancy in the evidence provided by the assessee.

Conclusion:
The Tribunal held that the addition made in the case of the assessee was not justified and needed to be deleted. The assessee had established the genuineness of the transactions with evidence, and the incriminating material relied upon by the Revenue lacked credibility and evidentiary value. Consequently, the appeal filed by the assessee was allowed, and the addition of Rs. 25,91,606/- was directed to be deleted. The order was pronounced in the open Court on 30/08/2024 at Ahmedabad.

---