2025 (10) TMI 297 - AT - Income Tax

Tax appeal upholds 25% purchase disallowance for purchases from bogus supplier; Rs 12 lakh unsecured loan treated as genuine

ITAT AHMEDABAD upheld a 25% disallowance of purchases from a previously admitted bogus supplier, finding the assessee failed to prove genuineness and ... Purchase admitted to be bogus by the assessee during survey - onus of proving the genuineness of transaction of purchases - Purchase made from parties who were unresponsive to notices issued u/s.133(6) - Parties whose PAN number and correct addresses were not furnished by the assessee - HELD THAT:- The assessee admittedly having entered into bogus purchase transactions with the said party in the past and having not discharged its onus of proving the genuineness of the transaction in the impugned year, CIT(A), we hold, was right in disallowing 25% of the purchase transactions entered into with the said party, as per the admitted position in the past. We agree with the CIT(A) that the documents filed by the assessee in itself are not sufficient to prove the genuineness of the transaction, when the AO was prevented from verifying the veracity of the documents by the assessee, by not producing the said party before him for examination. Shortage of time taken by the assessee before the AO for not producing the said party, does not help the case of the assessee, since we have noted from the assessment order that it was the assessee who was responsible for postponing and dragging the assessment proceedings to the fag end of the limitation period by not complying with notices issued initially by the AO. Clearly shortage of time cannot be in any way attributed to the AO, but it is on account of the non-cooperative attitude of the assessment in the assessment proceedings dragging the same to the fag end of the limitation period. The assessee cannot benefit by its own faults. Therefore, we hold, CIT(A) was right in holding that the documents filed did not prove the genuineness of the transaction and that the assessee failed to discharge its onus of proving the genuineness of the transaction. In the facts of the present case the purchases have been held non genuine to the extent of 25% not solely on the basis of statement recorded during survey. In fact, the assessee had in the preceding years surrendered purchases admitted to be bogus in the statement recorded, and in the impugned year had failed to discharge its onus of proving the genuineness of the transaction. Therefore, the statement of the assessee stood corroborated by the surrender made in the past years by the assessee coupled with assessee failing to prove the genuineness of the transaction in the impugned year. The case laws relied upon assessee are therefore found to serve no purpose. CIT(A) confirming the addition on account of bogus purchases made from Ambaben Laljibhai Chaudhary is upheld. Disallowance of purchase made by the assessee treating them to bogus - disallowance made by the AO was 25% of the total purchases made by the assessee from 16 parties - AO, we hold, has rightly noted that the evidences so filed at the fag end of assessment proceedings were impossible to be verified. The Ld.CIT(A), therefore, we hold, was not correct in appreciating these very same unverified evidences and holding that the AO had no adverse comments to make on the same or that the AO gave no time to the assessee to file evidences. The Ld.CIT(A) was grossly unjustified on facts, for blaming the AO for not giving sufficient time to the assessee to file evidences. The facts revealing the AO having not even considered these evidences filed before him, the Ld. CIT(A) could not have held that there were no adverse findings by the AO on these evidences. In our view, rightfully the Ld. CIT(A) ought to have sought a remand report from the AO on all the evidences filed after duly verifying all of them and only thereafter should have adjudicated the issue. CIT(A) appreciated all the evidences filed by the assessee before him, without affording an opportunity to the AO to make his submissions on the same, which is grossly against the principles of natural justice. We, therefore, consider it fit to restore this issue back to the file of the AO to verify all the evidences filed by the assessee. Unexplained unsecured loans taken - We are unable to agree with the Ld. CIT(A) that the assessee has failed to discharge its onus of proving the genuineness of the impugned loan taken of Rs. 12 lakhs. The assessee having sufficiently demonstrated the genuineness of the impugned transaction with documentary evidences and none of the authorities below having found any infirmity in the evidences so submitted by the assessee. Assessee had duly discharged its onus of proving the genuineness of the unsecured loan and accordingly, direct the deletion of the addition made. Ground of the assessee’s appeal is, therefore, allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether purchases admitted as bogus in a statement recorded during survey, and previously surrendered under the IDS scheme in earlier years, can be disallowed in the assessment year in question to the extent admitted where the assessee fails to prove genuineness for that year. 2. Whether additions can be sustained where notices under section 133(6) remained unserved or where addressees failed to respond, and the assessee files evidences at the fag end of assessment proceedings that were not verified by the Assessing Officer. 3. Whether the Assessing Officer's 100% disallowance of purchases from creditors lacking PAN and current address, and lacking basic documentary proof (stock registers, transport receipts, etc.), is justified where the Appellate Commissioner restricted/deleted such disallowance without remand for verification. 4. Whether unsecured loans shown as receipts can be added under section 68 where the assessee produces lender's PAN, bank entries, ledger/confirmation and subsequent-year repayments. 5. Whether appraisal by the appellate authority of evidences filed at the last stage without remand to the Assessing Officer violated principles of natural justice. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Disallowance of purchases admitted as bogus (25% disallowance upheld) Legal framework: Burden lies on the assessee to prove genuineness of purchases; statement recorded during survey can be evidence when corroborated; prior surrender under an IDS scheme is relevant to assess genuineness in subsequent years. Precedent treatment: Decisions relied upon by the assessee were cited for the proposition that additions cannot be made solely on the basis of statements recorded during survey without corroboration. The Tribunal distinguished those precedents on facts. Interpretation and reasoning: The assessee had admitted 25% non-genuineness in the survey statement and had surrendered amounts in prior years under the IDS scheme in respect of the same creditor. For the impugned year, the assessee furnished PAN, ITR and ledger confirmation but failed to provide contemporaneous documentary proof or facilitate verification by producing the counterparty for examination. The assessee delayed cooperation until the limitation period's end, impeding AO's verification. The combination of (i) prior admission and surrender; (ii) survey statement admission; and (iii) failure to discharge the onus to prove genuineness in the impugned year, amounted to sufficient basis to uphold a 25% disallowance. Ratio vs. Obiter: Ratio - where an assessee has earlier admitted non-genuineness and surrendered amounts, and fails to discharge onus in a later year (including by obstructing verification), an addition up to the previously admitted percentage is sustainable. Obiter - general observations on the insufficiency of PAN/ITR alone without verification. Conclusion: The 25% disallowance in respect of the particular creditor is upheld; assessee's ground challenging that disallowance dismissed. Issue 2 - Disallowance for purchases from parties to whom notices returned unserved or who did not respond to section 133(6) Legal framework: AO may call for information under section 133 and may form an opinion on genuineness if counterparties are untraceable or do not respond; however, evidential burden and verification requirements remain. Precedent treatment: No binding precedent overruled; appellate reliance on evidences submitted late was found contrary to good appellate practice. Interpretation and reasoning: AO disallowed 25% of purchases from 16 parties because notices to three were returned unserved and 13 parties did not respond to 133(6) notices. The assessee furnished PANs, bills and banking proof very late (26.12.2019), leaving inadequate time for AO to verify before the assessment's limitation. The CIT(A) accepted those unverified materials and deleted most additions without remanding to AO for verification and without giving AO opportunity to comment - a breach of natural justice and improper appellate procedure. Given the chronology and AO's inability to verify late-filed evidence, the correct course was remand for verification, not wholesale deletion by CIT(A). Ratio vs. Obiter: Ratio - appellate authority must remit to AO for verification when material is filed late and AO has not had an opportunity to verify or comment; deletion without remand where verification is feasible is improper. Obiter - notes on adequacy of banking evidence absent counterparty confirmation. Conclusion: Issue restored to AO for verification of evidences filed; both assessee and Revenue grounds on this issue allowed for statistical purposes and matter remanded. Issue 3 - 100% disallowance for purchases from creditors lacking PAN/address and basic documentary support (CIT(A) deleted; remand ordered) Legal framework: AO may disallow expenditures where assessee fails to demonstrate genuineness via PAN, address, and corroborative trade documentation; however, principles of fair hearing and verification apply. Precedent treatment: No specific precedent overruled; appellate authority's duty to afford AO chance to verify emphasized. Interpretation and reasoning: AO made 100% disallowance for 29 creditors due to lack of PAN, current address and absence of basic trade documents. CIT(A) deleted most disallowance relying on late-filed evidences (26.12.2019) and limited disallowance to 25% for certain specified parties. Tribunal found CIT(A)'s appreciation unjustified because it ignored the assessment record showing assessee's chronic non-cooperation and late production of material; CIT(A) should have remitted the issue to AO to verify late-filed documents rather than deleting. Consequently, the proper remedy is remand for verification and fresh adjudication. Ratio vs. Obiter: Ratio - where critical documentation is filed at the last minute and AO has not verified, appellate deletion without remand is improper; AO must be given opportunity to verify and comment. Obiter - assessment of sufficiency of documents (stock registers, transport receipts) depends on AO's verification. Conclusion: CIT(A)'s deletions set aside for procedural infirmity; matter remitted to AO for verification and fresh adjudication after affording opportunity of hearing. Issue 4 - Addition of unsecured loans under section 68 (deletion upheld) Legal framework: For unexplained credits/loans, the assessee must prove identity, genuineness and creditworthiness of the lender; bank entries, PAN, ledger, confirmation and repayment evidence are relevant. Precedent treatment: Authorities below found no evidence; Tribunal examined documentary record and differed. Interpretation and reasoning: AO and CIT(A) treated certain unsecured loans as unexplained. The assessee, however, produced lender's PAN, bank statements showing receipt and repayment, ledger and confirmation, and repayment in the succeeding year - all via banking channels. These documents were on record and not shown to be infirm. Given the documentary proof demonstrating genuineness and repayment, the assessee discharged its onus in respect of the specified unsecured loan amount, rendering the addition unsustainable. Ratio vs. Obiter: Ratio - where adequate contemporaneous bank records, PAN, ledger confirmations and repayment entries exist for an alleged unsecured loan, addition under section 68 cannot be sustained. Obiter - general reiteration that each loan must be considered on its evidentiary merits. Conclusion: Addition of Rs. 12,00,000 relating to the specified unsecured loan deleted; assessee's ground on this issue allowed. Issue 5 - Natural justice and appellate duty to remit where AO has not verified late-filed evidence Legal framework: Appellate authority must observe principles of natural justice and give parties (including assessing officer) opportunity to comment on material that was not adduced earlier; when evidence is filed late, proper course is verification by AO or remand rather than final disposal prejudicing either party. Interpretation and reasoning: CIT(A) accepted and appreciated evidences filed at fag end without obtaining AO's verification or a remand report, and without affording AO opportunity to comment. Tribunal held this approach contrary to fair procedure; remand to AO for verification and fresh adjudication is required where AO had been denied realistic opportunity to verify late-filed material due to assessee's dilatory conduct. Ratio vs. Obiter: Ratio - appellate authority erred in adjudicating on late-filed, unverified material without remand; proper practice is remand for verification and AO's comments. Obiter - the assessee cannot benefit from its own delay in furnishing evidences. Conclusion: Where assessment records show late filing and AO's inability to verify, appellate acceptance without remand is procedurally infirm; affected issues remitted to AO for verification and fresh disposal, except where documentary sufficiency was admitted (see Issue 4).