Bogus purchase allegations over raw boneless meat buys and exports, with s.263 revision and reassessment additions set aside

Revision under s. 263 on alleged bogus purchases turned on whether the assessment was "erroneous and prejudicial to the interests of the Revenue." The Tribunal held the AO had made independent enquiry, recorded third-party and assessee personnel statements, and adopted a possible view accepting the purchases; the revisional authority failed to record a clear finding of error and prejudice and proceeded on suspicion without showing absence of enquiry or independent adverse material. Consequently, the s. 263 order was set aside and the assessee's grounds were allowed. On reassessment additions for purchases of raw boneless meat, the Tribunal upheld the appellate finding that exports and corresponding sales were accepted, stock/yield was not doubted, payments were through banking channels, and the "round-tripping" inference lacked year-specific material; the deletion of additions was sustained.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether the revisionary jurisdiction under section 263 could be validly exercised to set aside a reassessment order where the reassessing authority had made enquiries (including recording the supplier's statement) and accepted purchases as genuine, and whether the prerequisites of "erroneous" and "prejudicial to the interests of the revenue" were satisfied.

(ii) Whether additions for alleged bogus purchases of raw boneless meat were sustainable when export sales, stock/quantitative records, invoices, banking payments, and supplier assessments were not doubted, and the allegation of round-tripping lacked year-specific supporting material.

(iii) Whether an addition based solely on cash withdrawals by the supplier (treated as indicative of accommodation entries) could be sustained in the purchaser's hands when purchases and corresponding exports/records were accepted and no evidence showed cash returning to the purchaser.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Validity of revision under section 263 against reassessment accepting purchases as genuine

Legal framework (as discussed/applied): The Court applied the requirement that section 263 can be invoked only if the assessment order is both erroneous and prejudicial to the interests of the revenue, and considered the application of Explanation 2(a) (order passed "without making enquiries or verification").

Interpretation and reasoning: The Court found that the reassessment was initiated specifically to verify alleged bogus purchases from the supplier. During reassessment, the authority issued a specific query, called for supporting materials, issued summons to the supplier, and recorded the supplier's statement on oath confirming the sales and furnishing sample bills and account details. The Court held this demonstrated enquiry and application of mind. The Court further reasoned that the revision authority's approach rested substantially on suspicion arising from the supplier's cash withdrawals and the "protective" addition made in the supplier's case, without demonstrating how the reassessment order suffered from a legally actionable error, or how prejudice arose, particularly when the purchases were supported by banking payments and the business reality of dealing with an unorganised sector where downstream payments are often cash-settled.

Conclusions: The Court set aside the revision order. It held that the case was not one of absence of enquiry; the reassessing authority had taken a possible view after verification. The revision authority failed to establish the twin conditions of section 263 and could not treat the reassessment as erroneous merely on suspicion about cash withdrawals or on a differing opinion as to what addition "should" have been made.

Issue (ii): Deletion of addition for alleged bogus purchases of raw boneless meat

Legal framework (as discussed/applied): The Court evaluated whether the purchase disallowance/addition could stand on the record, particularly in light of acceptance of sales, stock/yield records, and the absence of incriminating, year-relevant material supporting "bogus purchases" or "round-tripping".

Interpretation and reasoning: The Court noted that the assessing authority doubted the procurement model (purchase of raw boneless meat rather than processing entirely in-house) and treated the entire purchases as bogus, relying on certain third-party responses and a theory of routing/round-tripping. The Court held that it is for the business to decide procurement methods; what mattered was that exports were effected, were cleared through customs, and required approvals were obtained, and these exports were accepted. The Court agreed with the appellate findings that there was no direct evidence establishing bogus purchases; payments were through banking channels; purchase invoices and GST reconciliation were produced; stock/quantitative records and yield were not adversely commented upon; and the alleged round-tripping was based on an "algorithm/hypothesis" not supported by material relatable to the relevant year. It also treated as significant that sales of the suppliers were accepted in their assessments by the same authority, undermining the stance that corresponding purchases were fictitious.

Conclusions: The Court upheld deletion of the addition relating to raw boneless meat purchases, holding that the evidentiary foundation for branding the purchases as bogus and for alleging round-tripping was not established on the record considered and accepted by the Court.

Issue (iii): Addition based on supplier's cash withdrawals (alleged accommodation entry cycle) in respect of livestock purchases

Legal framework (as discussed/applied): The Court assessed whether cash withdrawals by the supplier could, by themselves, justify an addition in the purchaser's hands, particularly where purchases were accepted as genuine on enquiry and were linked to recorded quantitative inflow and export sales.

Interpretation and reasoning: The Court treated the addition methodology as flawed because it proceeded on the supplier's bank withdrawals rather than identifying specific bogus purchase transactions or evidence that cash returned to the purchaser. The Court emphasised that the purchaser's payments were through banking channels and the supplier, when examined, confirmed supplies and explained cash withdrawals as being for paying farmers/market suppliers in an unorganised sector. The Court further relied on the presence of contemporaneous quantitative/arrival registers and veterinary-related records evidencing receipt of livestock and the commercial impossibility of substantial exports without corresponding procurement. The Court held that a conclusion of bogus purchases could not rest on suspicion drawn from cash withdrawals alone, absent independent material showing accommodation-entry routing back to the purchaser.

Conclusions: The Court upheld deletion/dismissal of additions premised on the supplier's cash withdrawals and rejected the inference that such withdrawals automatically established accommodation entries or justified substantive addition in the purchaser's hands.

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