2025 (12) TMI 1701 - AT - Income Tax

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 ... Revision u/s 263 - non-application of mind on the part of AO on bogus purchases - HELD THAT:- AO had recorded statement from Mr Irfan independently and the relevant statements matched with the further statements recorded with the personnel of the assessee company and applied his mind, in our view, taken a possible view. PCIT had not given clear finding how the assessment is erroneous and also how it is prejudicial to the interest of revenue. He merely observed that the substantive addition should have been made in the case of assessee, since it was not made, he formed an opinion that the assessment proceedings are bad as well as erroneous. He observed that AO had not applied his mind as well as not verified the issues he is supposed to. It is not the case of PCIT that no verification at all was made. Therefore, relying on the decisions in the case of Shreeji Prints (P) Ltd [2021 (9) TMI 108 - SUPREME COURT], G. Housing Projects [2012 (3) TMI 227 - DELHI HIGH COURT] and Arora Alloys Ltd [2014 (7) TMI 1119 - PUNJAB & HARYANA HIGH COURT] wherein, held that revenue had not collected any independent material to arrive at conclusion that there were unexplained sales or purchases made by the assessee. In the given case, the AO had made the independent enquiry and recorded the statement of Mr. Irfan and came to the conclusion that the purchases are genuine and is one of the possible view, PCIT had merely relied on the issues raised in the case of Mr. Irfan and observed that the relevant substantive addition should have been made merely on the basis of cash withdrawals by Mr. Irfan without really understanding the nature of the business of the assessee and also the assessee would not have made the exports without the supply of live stocks purchased thru the middlemen, particularly dealing in the unorganized sector. One cannot treat the assessment as erroneous on the basis of suspicion and gut feeling that the assessment was made without application of mind. Therefore, we are inclined to set aside the order passed u/s 263 with the above detailed observations. Hence, the grounds raised by the assessee are allowed. Reopening of assessment - assessee had purchased raw boneless meat (RBM) from certain parties - CIT(A) deleted addition - HELD THAT:- CIT(A) had observed in his order that the assessee had procured RBM for short period of time, which was later discontinued. He also analyzed the findings of AO with respect to the issue of notice u/s 133(6) and various statements of the suppliers, he observed that AO had merely relied on the statement of certain suppliers, which are contrary to the facts on record. The relevant details of suppliers, AYs and details of assessment completion are reproduced. He further observed that sales of RBM have been accepted by the AO from the same suppliers during the assessment proceedings and search proceedings, the corresponding purchase of same RBM cannot be disbelieved. He came to the conclusion based on the various documents and confirmations of the parties who have supplied the RBM, the relevant documents were all submitted before him. CIT (A) observed that assessee is a producer and exporter of frozen meat and when the sales which are mostly exported, which have undergone custom clearance, necessary approvals from APEDA have been taken, then to consider the purchases done by the assessee as bogus would not be right. Also observed that AO had not doubted the stock records or the yield nor any incriminating material was brought on record. All the payments for the purchases are through proper banking channel which is not under dispute either. Since the sales and purchases are two sides of the same coin, to dispute the purchases from the major suppliers in the hands of the assessee, at the same time AO had accepted the sales of the suppliers itself proves that the reasoning for making addition in the hands of the assessee is not correct. With regard to round tripping of funds, CIT(A) observed that the AO had inferred on the basis of purchase of RBM, which is not the regular method of processing of meat, based on that he formed the algorithm and hypothesis without their being any material in its support, none of the material reproduced in assessment order like ledger copy, WhatsApp messages etc are not related to the impugned assessment year. After considering the relevant issues, he came to the conclusion that the purchases recorded by the assessee are genuine purchases and not bogus. Decided against revenue. 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.