Deletion of bogus raw meat purchase addition sustained as assessee proved it only earned factory rental income

The ITAT Agra dismissed the revenue's appeal challenging deletion of addition on account of alleged bogus purchases of "raw boneless meat" and round-tripping of funds. The AO had proceeded on an incorrect factual premise that the assessee carried on manufacturing activities, whereas the record showed the assessee had leased its factory premises to another entity and was only earning rental income, with supporting rent agreements and ledgers. The Tribunal held that the CIT(A) correctly appreciated the factual matrix, found the purchases allegation unsustainable, and rightly deleted the addition.

---

---

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether addition on account of alleged bogus purchases of "Raw Boneless Meat" could be sustained in the hands of the assessee when no such purchases were recorded in its books and the related business operations were carried out by another entity operating the assessee's plant on rent.

1.2 Whether the findings for the assessment year 2020-21 regarding the nature of operations and absence of such purchases in the assessee's books apply identically to subsequent assessment years.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Sustainability of addition for alleged bogus purchases of "Raw Boneless Meat"

Interpretation and reasoning

2.1 The Assessing Officer treated purchases of "Raw Boneless Meat" as bogus on the basis of (a) enquiries under section 133(6) from certain suppliers, who allegedly denied having supplied such goods to the assessee, and (b) findings and material relating to another assessee in earlier assessment years, including allegations of round tripping of funds.

2.2 The assessee's consistent case before the Assessing Officer and the first appellate authority was that it had not made any purchases of "Raw Boneless Meat"; the plant at the relevant premises was being run by another company under a rental arrangement, and all such purchases were recorded in the books of that other company.

2.3 The assessee produced material showing that the factory premises were given on rent and that rent income from the other company had been recorded; it was also shown that the suppliers in question were appearing as creditors in the books of the other company, not in the assessee's books.

2.4 The first appellate authority accepted these factual submissions, recorded that no purchases of "Raw Boneless Meat" were booked in the assessee's books of account, and held that the Assessing Officer had wrongly applied data and findings pertaining to another entity to the assessee.

2.5 The Tribunal found that the assessee had not carried out business activities in the leased facility, that the factory had been given on rent, and that the addition was made on an incorrect factual premise arising from a wrong understanding of the assessee's operations.

2.6 The Tribunal agreed with the factual appreciation of the first appellate authority that, in the absence of any such purchases in the assessee's books, the question of treating them as bogus in the assessee's hands did not arise.

Conclusions

2.7 The addition on account of alleged bogus purchases of "Raw Boneless Meat" in the assessee's hands was unsustainable and was rightly deleted by the first appellate authority.

2.8 The Tribunal upheld the deletion and dismissed the revenue's appeals on this issue.

Issue 2 - Applicability of findings for one assessment year to other years

Interpretation and reasoning

2.9 The Tribunal noted that the factual matrix and grounds in the revenue's appeals for the subsequent assessment years were exactly similar to those in the lead assessment year, particularly regarding the rented nature of the plant and absence of purchases of "Raw Boneless Meat" in the assessee's books.

2.10 On this basis, the Tribunal applied its findings for the lead assessment year mutatis mutandis to the subsequent years.

Conclusions

2.11 The additions on account of alleged bogus purchases in the subsequent assessment years were also unsustainable for the same reasons, and the revenue's appeals for those years were likewise dismissed.

---