GAUGE 16 KITCHEN EQUIPMENTS,BANGALORE vs. INCOME TAX OFFICER WARD 5(2)(4), BANGALORE

3.2 After going through the reply filed by the assessee firm as well as bank statement, the AO noticed that the alleged purchases amounting to Rs.50,35,980/- were credit purchases and no payment of the same has been made till the date of the passing of order by the AO. The assessee has also not given any reasons for such a long delay in making payments. Further the AO observe that the assessee could neither explain nor filed any supporting evidences in respect of addition proposed of Rs.50,35,980/- on account of business income. Further, with regard to the purchases made from Manjunatha Marketing, the assessee firm could neither file any confirmation of accounts nor provide e-mail address of the party. Accordingly, the AO was of the opinion that as the assessee has not made any payments, the purchases were bogus purchases made with the Gauge 16 Kitchen Equipments, Bangalore Page 4 of 8 purpose to reduce the tax liability of the assessee firm. The AO treated the purchases of Rs.50,35,980/- made from the three parties as bogus purchases and added the same to the business income of the assessee. The assessment was completed u/s 143(3) of the Act on a total income of Rs.62,99,990/-.

5.1 The Ld.CIT(A)/NFAC also held that the appeal deserves to be dismissed on merits as well as the findings made by the AO remain uncontroverted by the assessee and accordingly dismissed the appeal of the assessee.

Gauge 16 Kitchen Equipments, Bangalore Page 5 of 8 7. Before us, the ld. A.R. of the assessee vehemently submitted that with regard to the proposed addition of the purchases made from Manjunatha Marketing, the assessee had made actual purchases of Rs.5,33,000/- only & not Rs.10,12480/- as alleged by the AO. Further Ld. A.R. of the assessee submitted that during the course of assessment proceedings, the assessee firm had produced the purchase register along with the breakup of the purchases and corresponding GST, along with the invoices. The AO had accepted the sales and stock figure as disclosed by the assessee firm and submitted that the entire addition is based on the sole information from third party agency without conducting any independent enquiry by the AO.

9.1 On going through the assessment order, we also observed that during the course of assessment proceedings, the assessee along with its written submission had also furnished the bills/invoices relating to the purchases made from A to Z Traders, Manjunatha Marketing and Silicon Traders as well as the bank statement and purchase registers showing breakup of purchases along with the GST. We also cannot brush aside the fact that sales and closing stock as declared by the assessee along with the opening stock had been accepted by the AO. The only allegation made by the AO is that the assessee had not made any payments to the parties from whom the alleged purchases were made. We are of the considered opinion that AO had merely by relying upon the information received from Commercial Tax Department, Karnataka has added the entire purchases based without carrying out any independent enquiry. We are also of the considered opinion that the AO had failed to demonstrate as to how only purchases amounting to Rs. 50,35,980/- were only bogus out of the total purchases amounting Rs.1,60,51,004/- as declared by the assessee during the FY 2017-18. Merely because the payment were not made to the sundry creditors, the AO cannot presume that the purchases itself are bogus. The AO has not brought any adverse Gauge 16 Kitchen Equipments, Bangalore Page 7 of 8 material on record to prove that the purchases were bogus. Further, the assessee/AO has every right to add profits u/s. 41(1) of the Act in the year of remission or cessation of such trading liability on account of writing off. The AO ought not to have made addition without carrying out any independent enquiry and without offering due opportunity to controvert REIC report to the assessee.

9.2 We are also of the opinion that both the authorities below have also not brought on record that the payment of sale proceeds were routed through layering and after deducting commission the amounts were paid back in cash. Further, the information from Commercial Tax Department was that the fictitious bills/invoices were generated along with E-way bills and the purchase proceeds were routed through the bank channels however the addition was made by the AO on the ground that the assessee had not made any payment towards the said purchases which purely based on surmises & conjecture. The AO failed to show that the alleged purchases were bogus. Therefore, we do not find any reason to disbelief the genuineness of the purchases made by the assessee. Further, we also rely on the decision of Hon’ble High Court of Bombay in the case of PCIT Vs. Shapoorji Pallonji & Company Ltd. reported in (2020) 423 ITR 220 (Bom.), which has also been affirmed by the Apex Court in which it was held under- “18. Thus, we find that according to the Tribunal the assessing officer had merely relied upon information received from the Sales Tax Department, Government of Maharashtra without carrying out any independent enquiry. Tribunal had recorded a finding that assessing officer had failed to show that the purchased materials were bogus and held that there was no justification to doubt genuineness of the purchases made by the respondent – assessee.

9.3 In view of the above discussion and respectfully relying on the decision of Hon’ble Bombay High Court as above, we direct the AO to delete the addition of Rs.50,35,980/- as made on account of business income.