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Facts
The assessee declared income under Section 44AD and was selected for scrutiny based on information that fictitious invoices were used. The AO treated purchases worth ₹21,17,844 as bogus due to lack of confirmations, transport bills, and payment proof, adding it under Section 69A.
Held
The Tribunal held that additions cannot be sustained solely on third-party data without independent verification, especially when the assessee provided party details and GST information. The AO's addition was deleted as the Revenue failed to prove the case.
Key Issues
Whether the addition sustained by the CIT(A) based on third-party information from the Commercial Taxes Department, without independent verification by the AO, is valid.
Sections Cited
44AD, 69A, 143(3)
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Income Tax Appellate Tribunal, ‘SMC’ BENCH, BANGALORE
Before: SHRI WASEEM AHMED & SHRI SOUNDARARAJAN K
PER WASEEM AHMED, ACCOUNTANT MEMBER:
This is an appeal filed by the assessee against the order of the NFAC, Delhi vide order dated 07/03/2025 in DIN No.ITBA/NFAC/S/250/2024- 25/1074176342(1) for the assessment year 2018-19.
The assessee declared income of ₹1,51,270 u/s 44AD of the Act. The case was selected for scrutiny on the basis of information from the Department of Commercial Taxes, Karnataka that fictitious invoices were issued without actual movement of goods. The AO noted that the Page 2 of 4 assessee had shown purchases of ₹21,17,844 from M/s Prestige Interiors. As the assessee failed to furnish confirmations, transport bills, and bank statements, the AO treated the purchases as bogus and added the amount u/s 69A of the Act.
On appeal, the ld. CIT(A) upheld the additions. He held that the invoices were not supported by delivery challans or evidence of inward transport, nor was any proof of payment furnished. In his view, the assessee failed to prove genuineness of the purchases, and therefore the AO was right in treating them as unexplained investment.
Aggrieved by the order of learned CIT-A, the assessee is in appeal before us.
The learned Authorised Representative submitted that the AO had not conducted any independent enquiry and had only relied on third- party information from the Commercial Taxes Department. The assessee had furnished names, addresses, and GST numbers of the suppliers along with copies of invoices. No attempt was made by the AO to verify these details. The assessee was engaged in trading activity and income was offered u/s 44AD, where detailed books and stock records are not required to be maintained. The gross receipts declared were not disputed. The ld. AR argued that without independent verification, reliance only on third-party report is not sufficient.
On the other hand, the learned Departmental Representative supported the orders of the lower authorities. He argued that the assessee had failed to produce confirmations, transport details, and bank statements, which shows that the purchases were bogus. He submitted that even under presumptive taxation bogus purchases cannot be allowed.
We have carefully considered the rival submissions and perused the record. The addition of ₹21,17,844 was made by the AO solely on the basis of information from the Commercial Taxes Department. No independent enquiry was carried out, no summons were issued, no confirmations were obtained, and no further investigation was made to prove that the assessee had entered into fictitious purchases. It is settled law that while information from an external agency may form the basis for enquiry, it cannot be the sole ground for addition without verification. The assessee had produced party details and GST information which were not verified by the AO. Further, the income was declared under presumptive taxation scheme and the turnover has not been doubted. Once the gross receipts are accepted, purchases cannot be disallowed without bringing positive evidence on record. Considering the facts we hold that additions cannot be sustained merely on the basis of third-party data. Hence, we note that the assessee has discharged his onus and the Revenue has failed to prove the case. Accordingly, the addition sustained by the ld. CIT(A) is hereby deleted. Hence, the ground of appeal of the assessee is hereby allowed.
In the result, the appeal of the assessee is allowed.