2026 (1) TMI 301 - AT - Income Tax

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 ... Non-genuine purchases - Estimation of income - G.P estimation in the case of doubtful purchases - HELD THAT:- Assessee has furnished various documentary evidences such as ledger account, invoice copies with goods receipt notes, E-way bills, transportation receipts and bank statement reflecting payments made regularly and also the ITR details of party No.1 for A.Y. 2018-19, 2019-20 & 2020-21. It is also an undisputed fact that these parties have been filing GST returns regularly showing substantial business transaction and also the finding of the Ld. CIT(A) that none of these parties are “specified persons” u/s 206AB & 206CCA, which substantiates that they have duly filed their return of income for the impugned year and disallowance of expenses towards purchases cannot be made merely on the ground that these parties have not filed their return of income, is not justifiable in our view. AO has not given a finding on the veracity of the documentary evidences furnished by the assessee nor has she stated that these parties are alleged to be accommodation entry providers engaged in providing bogus purchase bills which is the modus operandi of a regular accommodation entry provider. Pertinently, we also find no observation as to whether any enquiry was conducted in these companies as to their existence or whether or not there is any business transaction carried out by these companies has not been examined by the Ld. AO. The purported bogus purchases are said to have been backed by bills and vouchers along with the books of accounts of the assessee duly audited where the said transactions have been recorded, corroborates the fact that the assessee has proved the transaction to be genuine. There is no iota of doubt that the Ld. AO has failed to establish that the parties through whom the assessee has purchased are accommodation entry providers neither by any documentary evidences nor by circumstantial evidences where the Ld. AO has not faulted with the supporting documents filed by the assessee to substantiate its case and we also reiterate the fact that no inquiry was carried out by the Revenue to justify the disallowance of 46% of the purchases by holding the same to be bogus. It is also a settled proposition of law that the Revenue while disallowing bogus purchases would necessarily have to ignore the corresponding sales recorded against the alleged parties, which has not been done so in the present case in hand. In the absence of these findings, we do not find any justification in upholding the addition/disallowance made by the Ld. AO and thereby holding that there is no infirmity in the order of the CIT(A) in deleting the addition/disallowance made in the hands of the assessee and the same warrants no interference - Decided against revenue. Issues: Whether the appellate authority erred in deleting the addition of Rs. 25,55,69,713/- made by the Assessing Officer by treating certain purchases as non-genuine and disallowing them as bogus purchases.Analysis: The assessee produced ledger accounts, invoices, goods receipt notes, e-way bills, transportation receipts, bank statements showing payments and GST/ITR portal evidence for the suppliers; books of accounts were audited and no adverse finding under Section 37(1) was recorded by the auditor. The Assessing Officer made the addition by applying a gross profit rate to alleged unverifiable purchases primarily because some suppliers were initially recorded as non-filers; however, the record showed that three of the four suppliers were not 'specified persons' under Sections 206AB/206CCA and had filed returns. The Assessing Officer did not record any finding that the suppliers were accommodation entry providers, nor undertake independent inquiries into existence or business operations of the suppliers, nor disregard corresponding sales recorded by the assessee. Under the legal framework, routine business expenses meeting Section 37(1) conditions may be sustained where the assessee furnishes corroborative documentary evidence and the revenue fails to establish forgery, accommodation entries or other indicia of non-genuineness. The Assessing Officer’s mechanistic application of a GP percentage without examining veracity of documents or conducting enquiries was therefore inadequate to sustain the addition.Conclusion: The deletion of the addition by the first appellate authority is upheld and the Revenue's appeal is dismissed; the addition of Rs. 25,55,69,713/- is not sustained in favour of the assessee.Ratio Decidendi: Where an assessee adduces sufficient corroborative documentary evidence of purchases and the revenue does not conduct or record independent enquiries or establish that counterparties are accommodation entry providers, a disallowance by applying a presumptive gross profit percentage is unsustainable under Section 37(1).