Bogus Purchase and Unsecured Loan Additions Deleted Where Evidence Proved Genuine Transactions Under Sections 69C and 68

ITAT Kolkata allowed the assessee's appeal. The Tribunal held that addition u/s 69C for alleged bogus purchases from a named supplier was unsustainable, as the assessee produced purchase invoices, e-way bills, consignment notes, ledger extracts and bank statements showing payment through banking channels, and the AO relied only on a CGST report without independent corroboration. The purchases were found to be actually used in manufacturing. Further, deletion of addition u/s 68 in respect of unsecured loans from multiple lenders was directed, as the assessee had furnished ITRs, confirmations and bank statements establishing identity, creditworthiness and genuineness, and the AO/CIT(A) failed to identify any defect in such evidence.

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1. ISSUES PRESENTED AND CONSIDERED

(1) Whether purchases made from a supplier alleged to be issuing bogus GST invoices could be treated as unexplained expenditure under section 69C of the Act.

(2) Whether unsecured loans received from certain creditors could be treated as unexplained cash credits under section 68 of the Act despite production of confirmations, income-tax returns and bank statements of the creditors.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Addition under section 69C on account of alleged bogus purchases

Interpretation and reasoning

The Tribunal noted that the assessee had purchased MS Scrap from a particular supplier which was alleged by the tax authorities to be engaged in providing accommodation entries and issuing bogus/fake GST invoices. The Assessing Officer relied primarily on an adverse report from CGST authorities and on non-compliance of summons issued to the supplier to hold the purchases as non-genuine and to make addition under section 69C.

The Tribunal recorded that the assessee had furnished before the Assessing Officer and the appellate authority documentary evidences including purchase bills, e-way bills, consignment notes, ledger account of the supplier and relevant bank statements showing payments through banking channels. These evidences were part of the record and demonstrated that the purchases were used in the manufacturing process.

The Tribunal observed that, apart from relying on the CGST report alleging the supplier's involvement in bogus/fake invoices, the Assessing Officer had not brought on record any independent material to disprove the genuineness of the actual purchases by the assessee or to show that the goods were not received or not utilized in manufacturing.

Conclusions

The Tribunal held that, in the presence of corroborative documentary evidence establishing actual purchases and their use in manufacturing, a mere adverse report against the supplier, without further inquiry or contrary material, was insufficient to sustain the addition under section 69C. The order of the appellate authority sustaining the addition was set aside and the Assessing Officer was directed to delete the addition made under section 69C.

Issue 2: Addition under section 68 in respect of unsecured loans

Interpretation and reasoning

The Tribunal recorded that the assessee had raised unsecured loans from 15 parties and that the Assessing Officer had made addition in respect of loans aggregating to a specified amount received from five creditors on the ground that the assessee failed to prove identity, creditworthiness and genuineness of the transactions, and that some lenders were allegedly not filing returns.

The Tribunal noted that the assessee had submitted, before both the Assessing Officer and the appellate authority, confirmations of accounts, copies of income-tax returns and bank statements of the said five creditors, and these documents were placed in the paper book. It was also noted that written submissions, along with these evidences, were filed before the appellate authority.

The Tribunal emphasized that neither the Assessing Officer nor the appellate authority had pointed out any specific defect, deficiency or inconsistency in the confirmations, returns or bank statements submitted in support of the loan transactions. The appellate authority's conclusion that the assessee failed to discharge the onus under section 68 was not supported by any analysis of the materials filed.

The Tribunal placed reliance on the decision wherein it was held that, when documentary evidences such as confirmations, bank statements and other materials from loan creditors are on record and not found to be defective or unreliable, addition under section 68 without discussing or rebutting those materials is perverse and unsustainable.

Conclusions

The Tribunal held that the assessee had discharged the onus of establishing identity, creditworthiness of the creditors and genuineness of the loan transactions through the evidences furnished. In the absence of any specific adverse finding or defect in those materials, the addition under section 68 in respect of the unsecured loans from the five creditors could not be sustained. The order of the appellate authority affirming the addition was set aside and the Assessing Officer was directed to delete the addition.

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