9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2025 (5) TMI 361 - AT - Income TaxEstimation of income - bogus purchases - AO treated the purchases made from the two parties as bogus purchases they had not replied to the notices u/s 133(6) issued to them - AO estimated 3.92% GP thereon - disallowance @ 2% sustained by the CIT(A) - HELD THAT - The books of account of the assessee are audited as per provisions of section 44AB of Act and the commodity-wise sales and purchases in value and in quantity are given in audited Trading Account and Tax Audit Report. As during the assessment proceedings and the appellate proceedings before Ld. CIT(A) the assessee has submitted the confirmation letters received from two parties regarding the purchases made. We have also noted that the CIT(A) while acknowledging the production of documentary evidence and maintenance of detailed trading records still sustained 2% of the purchases as disallowance due to absence of third-party verification. It is pertinent to note that the Hon ble Courts have held time and again that addition cannot be sustained solely on the basis of third-party non-response especially when the assessee has produced adequate primary evidence substantiating the transaction. No discrepancy or adverse inference has been pointed out in the assessee s books or audit findings. We are of the considered opinion that having held the transactions are genuine by the Ld. CIT(A) and sustaining the disallowance @ 2% by the Ld. CIT(A) is an anathema to itself. The decision of the Ld. CIT(A) cannot be affirmed. Appeal of the assessee is allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this appeal are: (a) Whether the disallowance of 2% of the alleged bogus purchases amounting to Rs. 12,61,68,630/- made by the Assessing Officer and confirmed by the Commissioner of Income-tax (Appeals) [CIT(A)] is justified in law and on facts, particularly when the assessee has produced documentary evidence and confirmation letters from the suppliers? (b) Whether the entire addition on account of alleged bogus purchases ought to have been deleted, given the evidence produced by the assessee and the absence of any adverse material against the genuineness of the transactions? (c) The legal validity of sustaining any addition solely on the basis of non-response to notices issued under Section 133(6) of the Income-tax Act, 1961 (the Act), when the assessee has furnished primary evidence substantiating the transactions. 2. ISSUE-WISE DETAILED ANALYSIS Issue (a): Justification of Disallowance of 2% of Purchases as Bogus Relevant legal framework and precedents: The Assessing Officer (AO) invoked the provisions of Section 133(6) of the Act to issue notices to the suppliers for verification of purchases. The non-response by the suppliers led the AO to treat the purchases as bogus and disallow 3.92% of the purchases. The CIT(A) reduced this disallowance to 2%, citing absence of third-party verification but maintaining some addition as a safeguard. The principle that an addition cannot be sustained solely on the basis of non-response to third-party notices, especially when the assessee produces primary evidence, has been consistently upheld by higher judicial authorities. Court's interpretation and reasoning: The Tribunal noted that the AO's disallowance was premised on the non-response of the suppliers to notices under Section 133(6). However, the assessee submitted confirmation letters from both suppliers, which acknowledged the sales to the assessee's firm, payments made through banking channels, and provided copies of their ledgers and Income Tax Returns (ITRs). Further, the assessee produced documentary evidence showing that the purchases were recorded in the books of account and reflected in the GST returns (GSTR-1 and GSTR-9) of the suppliers and the assessee respectively. The CIT(A) acknowledged the documentary evidence but still sustained a 2% disallowance due to the inability to carry out third-party verification. The Tribunal observed that this approach was contradictory because the CIT(A) accepted the genuineness of transactions based on the evidence but still imposed a disallowance without any adverse material or discrepancy in the assessee's books or audit report. Key evidence and findings: The assessee produced:
Application of law to facts: The Tribunal applied the principle that non-response to third-party notices alone cannot lead to disallowance if the assessee has furnished adequate primary evidence to substantiate the transactions. The evidence produced by the assessee was found to be cogent and consistent with the books of account and statutory filings. The Tribunal held that sustaining any addition on the basis of mere non-response, without any adverse material or discrepancy, is not legally sustainable. Treatment of competing arguments: The Revenue's argument rested on the non-response of the suppliers to Section 133(6) notices, which the AO and CIT(A) treated as indicative of bogus purchases. The assessee countered this by producing detailed documentary evidence and confirmations. The Tribunal favored the assessee's submissions, emphasizing that the absence of third-party verification cannot override the primary evidence provided. Conclusion: The disallowance of 2% of purchases was held to be unjustified. The Tribunal found the transactions genuine and real, and the disallowance was quashed. Issue (b): Whether Entire Addition Should be Deleted Relevant legal framework and precedents: The principle that additions must be based on tangible evidence and not mere assumptions or presumptions is well-established. The Tribunal referred to precedents where courts have held that additions cannot be sustained solely on the basis of non-response to notices or suspicion without corroborative evidence. Court's interpretation and reasoning: The Tribunal found that the assessee maintained detailed commodity-wise trading accounts with complete quantity and value details, audited as per Section 44AB of the Act. The turnover and purchases were consistent, and the audit report did not indicate any discrepancy. The confirmation letters and GST returns further corroborated the genuineness of the transactions. Key evidence and findings: The total turnover was Rs. 81 crores and purchases Rs. 78 crores, indicating a consistent trading pattern. The audit and tax audit reports were unblemished. The confirmation letters and banking evidence supported the genuineness of purchases. Application of law to facts: Given the documentary evidence and absence of any adverse material, the entire addition was found to be unwarranted. The Tribunal held that sustaining even a part of the addition was inconsistent with the acceptance of genuineness by the CIT(A). Treatment of competing arguments: While the Revenue sought to uphold part of the addition as a precautionary measure due to lack of third-party verification, the Tribunal rejected this approach, emphasizing the primacy of the evidence produced by the assessee. Conclusion: The entire addition was deleted. Issue (c): Legality of Addition Based Solely on Non-Response to Section 133(6) Notices Relevant legal framework and precedents: Section 133(6) empowers the AO to summon persons to produce evidence or furnish information. However, non-response to such notices does not ipso facto establish bogus transactions. Judicial precedents have clarified that additions must be based on a holistic view of evidence, not mere presumptions. Court's interpretation and reasoning: The Tribunal reiterated that non-response to third-party notices cannot be the sole basis for addition if the assessee produces adequate primary evidence. The Tribunal observed that the CIT(A) himself acknowledged the genuineness of transactions but still sustained a disallowance, which was contradictory and legally untenable. Key evidence and findings: The Tribunal noted the absence of any adverse findings in the audit or books of account and the presence of detailed documentary evidence corroborating the purchases. Application of law to facts: The Tribunal applied the principle that suspicion or non-response cannot override documentary proof. The addition based solely on non-response was therefore not sustainable. Treatment of competing arguments: The Revenue's reliance on non-response was rejected in light of the evidence provided by the assessee. Conclusion: Addition based solely on non-response to Section 133(6) notices is not sustainable. 3. SIGNIFICANT HOLDINGS "The reason for making the impugned addition was that, in response to the notice issued to the parties u/s 133(6) of the Act, no reply was submitted by any of the parties for confirmation of purchases made by the assessee. ... The assessee has produced all the documents available with them as above but third party verification had not been possible in this case. Keeping in view of the natural justice with the assessee, GP to turnover ratio taken by AO as 3.92 percent is further reduced to 2 percent." "... the assessee has maintained commodity wise Trading accounts with complete quantity details. The total turnover of the sales amounted to Rs. 81 Crores during the year. The purchases were to the tune of Rs. 78 Crores. The books of account of the assessee are audited as per provisions of section 44AB of Act and the commodity-wise sales and purchases in value and in quantity are given in audited Trading Account and Tax Audit Report." "... addition cannot be sustained solely on the basis of third-party non-response, especially when the assessee has produced adequate primary evidence substantiating the transaction. No discrepancy or adverse inference has been pointed out in the assessee's books or audit findings. Therefore, in view of the totality of facts and circumstances, we are of the considered opinion that, having held the transactions are genuine by the Ld. CIT(A) and sustaining the disallowance @ 2% by the Ld. CIT(A) is an anathema to itself. The decision of the Ld. CIT(A) cannot be affirmed." Core principles established include:
Final determinations:
|
