2015 (1) TMI 1506 - AT - Income Tax

Bogus purchases - notice came back unserved from the suppliers after several years of the purchases - HELD THAT - Assessee has exported the purchases made and the exports have not been disputed. The purchase bills also contained the stamped by Sales Tax Check posts. Revenue is not disputing the quantitative details of opening and closing stock purchases and sales payments have been made through bank. Hence merely because notice came back unserved from the suppliers after several years of the purchases made assessee s purchases cannot be disallowed. Accordingly we set aside the order of Authorities below and decided the issue in favour of assessee.

Summary

Issues:
1. Dispute over addition of Rs. 18,64,605 as fictitious purchases from two suppliers.
2. Allegation of payments made to third party on behalf of suppliers being hypothetical.
3. Dispute over the genuineness of Rs. 1,00,000 received from two individuals.

Analysis:
1. The dispute over the addition of Rs. 18,64,605 was the primary issue in this case. The Assessing Officer (AO) raised concerns regarding purchases made from two suppliers, M/s Bhawani Enterprises and M/s Shivam Trading Company. Despite the appellant's submission of various evidences, the AO deemed the purchases as false and fabricated due to unserved postal remarks and lack of plausible explanations. The Commissioner of Income-tax (Appeals) upheld the addition. However, the appellant presented detailed evidence including purchase bills, export process explanations, quantitative details, and bank statements to prove the authenticity of transactions. The Tribunal noted that exports were under Customs and RBI control, and adverse inferences drawn by lower authorities were insufficient to disallow the purchases. Citing relevant case laws, the Tribunal ruled in favor of the appellant, setting aside the lower authorities' decision.

2. The allegation of hypothetical payments made to a third party on behalf of suppliers was also a significant issue. The AO claimed that payments were actually made to different entities, M/s Pawn Traders and M/s Govind Nagar Sugar Ltd., rather than the stated suppliers. The appellant argued that such practices were common in business to expedite payments and avoid bank charges. The Commissioner upheld the addition based on non-traceability of the suppliers and payments to third parties. However, the Tribunal found the appellant's explanations reasonable, considering the evidence provided and industry practices. The Tribunal's decision favored the appellant, emphasizing that customary payment procedures should not lead to disallowances.

3. Lastly, the dispute over the genuineness of Rs. 1,00,000 received from two individuals was briefly mentioned. The appellant did not press this ground, leading to its dismissal. While this issue was not extensively discussed in the judgment, it was part of the overall appeal. The Tribunal's decision primarily focused on the larger disputes regarding fictitious purchases and hypothetical payments, leading to a partial allowance of the appellant's appeal.

In conclusion, the Tribunal's detailed analysis and reliance on relevant legal precedents resulted in a favorable outcome for the appellant, overturning the lower authorities' decisions on the disputed issues related to purchases and payments.