Alleged bogus purchase invoices vs supported records and GST filings; tribunal upholds full purchase allowance, dismisses tax addition appeal.
The dominant issue was whether purchases could be treated as non-genuine and partly disallowed by estimating G.P. The Tribunal held that the assessee discharged the onus of proving genuineness through contemporaneous records (ledgers, invoices with GRNs, e-way bills, transport receipts, bank payments) and the suppliers' regular GST compliance and income-tax filings, and the AO neither impeached these documents nor established that the suppliers were accommodation entry providers or conducted any meaningful enquiry into their existence or transactions. The Tribunal also noted that disallowance of purchases without rejecting corresponding sales was untenable. Consequently, deletion of the purchase disallowance/addition was upheld and the Revenue's appeal was dismissed.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether addition/disallowance on account of alleged non-genuine purchases could be sustained where the basis was primarily the alleged non-filing of returns by suppliers, despite the assessee producing purchase, transportation, receipt, and payment documentation and the suppliers being reflected as not being "specified persons" under Sections 206AB and 206CCA.
(ii) Whether gross profit estimation on "unverifiable/bogus purchases" was justified when the Assessing Officer neither discredited the assessee's supporting documents nor conducted independent inquiry establishing that the suppliers were accommodation entry providers, and when corresponding sales were not disturbed.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Sustainability of disallowance based primarily on suppliers' alleged non-filing of returns
Legal framework (as discussed by the Court/Tribunal): The Court considered the approach of allowing routine business expenditure where it otherwise satisfies the conditions laid down in Section 37(1), and noted the relevance of suppliers not being "specified persons" under Sections 206AB and 206CCA as a factual indicator bearing on whether they had filed returns for the relevant year.
Interpretation and reasoning: The Court upheld the finding that mere alleged non-filing of income tax returns by suppliers, by itself, is only a trigger for further investigation and cannot alone justify treating purchases as non-genuine when the assessee produced "ample documentary evidence" supporting purchase and delivery. The Court emphasized that the assessee furnished ledger accounts, invoices with goods receipt notes, E-way bills, transportation receipts, and bank statements showing payments, and that the suppliers were filing GST returns and the input tax credit corresponding to such purchases stood allowed. The Court also accepted the factual finding that the suppliers were not "specified persons" under Sections 206AB and 206CCA, supporting the conclusion that the pretext of non-filing for the relevant year was not made out. The Court further agreed that the assessee's responsibility does not extend to ensuring tax compliance by vendors where purchases are otherwise evidenced and recorded in duly audited books, and where there was no finding of violation in relation to such routine purchases.
Conclusion: Disallowance/addition could not be sustained merely on the ground of suppliers' alleged non-filing of returns when the assessee substantiated purchases through contemporaneous documentation, payments through banking channels, GST compliance indicators, and the factual material showing suppliers were not "specified persons" for the relevant year.
Issue (ii): Justification for GP addition on alleged bogus/unverifiable purchases without inquiry and without disturbing sales
Legal framework (as discussed by the Court/Tribunal): The Court treated the matter as turning on evidentiary appreciation and the necessity for the Revenue to establish bogus nature of purchases through findings on documents, inquiry into supplier existence/transactions, and linkage with accommodation entry activity; it also noted the "settled proposition" that disallowance of bogus purchases would necessarily require ignoring corresponding sales recorded against such alleged parties, which was not done.
Interpretation and reasoning: The Court found that the Assessing Officer did not record any finding on the veracity of the documents furnished by the assessee and did not identify the suppliers as accommodation entry providers, nor was any inquiry shown to have been conducted to verify their existence or whether they carried out business transactions. The Court held that audited books containing the recorded transactions, supported by bills and vouchers, corroborated genuineness in the absence of contrary findings. It further held that the Revenue failed to establish, by documentary or circumstantial evidence, that the purchases were accommodation entries or otherwise bogus, and that the Assessing Officer's approach of applying a high gross profit rate on alleged unverifiable purchases was unjustified on these facts. The Court additionally relied on the absence of any action to disturb corresponding sales, noting that disallowing purchases as bogus without addressing the matching sales undermined the basis for the addition.
Conclusion: The gross profit addition/disallowance on alleged bogus purchases was not justified because the Assessing Officer neither rebutted the assessee's documentary evidence nor conducted necessary independent verification to establish accommodation entry/bogus billing, and the corresponding sales were not rejected or ignored; therefore, deletion of the addition required no interference and the Revenue's challenge was dismissed.
TaxTMI 
AI Drafter ✕
TaxTMI 
