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Income Tax Appellate Tribunal, A BENCH: BANGALORE
Before: SHRI LAXMI PRASAD SAHU & SHRI KESHAV DUBEY
PER KESHAV DUBEY, JUDICIAL MEMBER:
This appeal at the instance of the assessee is directed against the order of ld. CIT(A)/NFAC dated 4.10.2024 vide DIN & Order No. ITBA/NFAC/S/250/2024-25/1069361908(1) passed u/s 250 of the Income Tax Act, 1961 (in short “The Act”) for the assessment year 2018-19.
The assessee has raised the following grounds of appeal:
The brief facts of the case are that the assessee company filed its return of income for the assessment year 2018-19 on 30.10.2018 by declaring total income of Rs.6,51,83,230/-. The case of the assessee company was selected for scrutiny and accordingly notices u/s 143(2) as well as 142(1) of the Act along with draft assessment order as show cause notice were issued calling for details. The assessee filed the relevant details & documents.
3.1 The background of the case is that the Regional Economic Intelligence Committee (REIC) brought to the notice of Income Tax Department that the fictitious bills/invoices were generated along with E-way bills and vehicle details without actual movement of goods or services or both. The purchase proceeds were routed through the bank channels. The parties have claimed bogus purchases in their books of accounts and inflated the expenses. As per the Department of Commercial Taxes, Karnataka, one of such party issued the bogus bill was M/s. Gandhi Iron & Steel Co, Proprietor Mr. Kantilal Gandhi (GSTIN – 29AANPG8686RIZD). The proceedings were initiated against this party u/s 132 of the CGST, 2017. Subsequently the beneficiaries of these bogus bills issuing parties were identified. The assessee in hand i.e. M/s. Maloo Constructions India Pvt. Ltd. is also one of the beneficiaries as per the details provided by the Commercial Tax department.
3.2 The assessee vide its written submission claimed that the Commercial Tax department (GST Dept.) has agreed on the genuineness of the sale. Further, the assessee also submitted the copy of bills, ledger of M/s. Gandhi Iron & Steel Co, details of payment made through banking channels. However, the AO was of the opinion that the assessee failed to satisfactorily explain the M/s. Maloo Constructions (India) Pvt. Ltd., Bangalore Page 4 of 10 genuineness of the purchase from M/s. Gandhi Iron & Steel Co and accordingly rejected the claim of the assessee with the following observations:
3.3 In view of the above, the alleged purchases of Rs.97,57,825/- made from M/s. Gandhi Iron & Steel Co is treated as bogus and disallowed the expenses/claim in the P&L account of the assessee and added to the income of the assessee.
Aggrieved by the order of AO passed u/s 143(3) of the Act dated 23.3.2021, the assessee preferred an appeal before the ld. CIT(A)/NFAC.
The ld. CIT(A)/NFAC dismissed the appeal of the assessee by holding that the assessee was required to prove the genuineness of purchases by furnishing delivery challans, stock register and detailed procedures of purchases from the entity. Therefore, the ledger copy, bank account transaction shall only be considered as fabricated exercise as the entity from which purchases were shown is not genuine. Therefore, it was considered that mere furnishing M/s. Maloo Constructions (India) Pvt. Ltd., Bangalore Page 5 of 10 the copy of bills/invoices, the payment through bank statement, etc. does not establish the genuineness of the purchase.
5.1 Further, the Ld. CIT(A)/NFAC also noted the assessee’s claim that the Commercial Tax department has agreed on the genuineness of the sale, however, there is no reference to the issue of purchases of goods from the entity M/s. Gandhi Iron & Steel Co. Further, ld. CIT(A)/NFAC observed that assessee has not submitted any report in its case which mentions that the Commercial Tax department has taken favourable view in the assessee’s case on the issue of bogus purchases and accordingly ld. CIT(A)/NFAC dismissed the appeal of the assessee.
Aggrieved by the order of ld. CIT(A)/NFAC dated 4.10.2024, the assessee has filed the present appeal before this Tribunal. The assessee has also filed a paper book comprising 199 pages containing therein the various documents/ bills/ returns/ records/ invoices/ ledger/order/written statement in support of its claim and also filed list of citation relied upon by the assessee.
Before us, the ld. A.R. of the assessee vehemently submitted that the assessee has produced the copy of GST return, copy of GSTR-2A, copies of Invoices, copies of E-way bill along with the bank statement as well as the ledger copy of Gandhi Iron & Steel Co and the ld. AO has not brought on record any adverse material to show the same as bogus. Further, ld. A.R. of the assessee also drew our attention to the observations of ld. Superintendent of Central Tax Audit Commissionerate -II, Bengaluru dated 15.3.2021 wherein the purchases from Gandhi Iron & Steel Company were held to be valid and only input tax credit availed on inward supply of goods were proposed to be disallowed as the assessee failed to pay to the supplier within the time limit of 6 months as per the M/s. Maloo Constructions (India) Pvt. Ltd., Bangalore Page 6 of 10 financial records. Further, ld. A.R. of the assessee submitted that during the F.Y 2017-18, the assessee has made total purchases of Rs.2,53,28,826/- from M/s. Gandhi Iron & Steel Company. However, based on mere suspicion & surmises, the ld. AO has disallowed only Rs.97,57,825/- alleging the same as bogus. Lastly, ld. A.R. of the assessee relied upon the decision of Hon’ble High Court of Bombay in the case of Principal CIT Vs. Shapoorji Pallonji and Co. Ltd. reported in (2020) 423 ITR 220 (Bom.) & submitted that entire addition is based on the information from third party agency without conducting any independent enquiry by the AO.
Ld. D.R. on the other hand relied on the order of the authorities below and vehemently submitted that the assessee had not submitted any report in its case which mention that the Commercial Tax department has taken favourable view in the assessee’s case on the issue of bogus purchases. Further, ld. D.R. submitted that assessee had also not furnished any documentary evidence, which shows that the Commercial Tax department has given the clean chit to the entity of M/s. Gandhi Iron & Steel Co. and accordingly prayed that the appeal may be dismissed.
We have heard the rival submissions and perused the materials available on record. The assessee Company is engaged in the business of designing, planning, managing, developing, building, erecting and/or construction & undertaking Government Contracts. The books of Accounts of the assessee company are audited under the companies Act,2013 as well as Income Tax Act,1961. It is an undisputed fact that the audited accounts was also accepted & no deficiency had been pointed out by the AO. We observe that the entire assessment proceedings centered around the specific information received from REIC with regard to the issuance of bogus bill by M/s. Gandhi Iron & Steel Co, Proprietor M/s. Maloo Constructions (India) Pvt. Ltd., Bangalore Page 7 of 10 Mr. Kantilal Gandhi, where the assessee company is alleged as one of the beneficiaries as per the details provided by the Commercial Tax Department. It is also observed that the assessee’s claim to provide them copy of confidential reports of REIC and/or investigation wing was rejected by AO by stating that these reports are of a confidential in nature and having details, transactions, name, etc. of several other assessees, which cannot be provided to the assessee. On going through the assessment order, we take a note of the fact that the assessee during the course of assessment proceedings had produced copies of invoices, E-way bills, bank statement, ledger copy of Gandhi Iron & Steel Co. along with the GST return and Form GSTR-2A. We also cannot brush aside the fact that the revenue from operations and other Income declared by the assessee along with inventories of finished stock has been accepted by the AO. We also take a note of the fact that during the course of assessment proceedings, the assessee had also submitted the copy of the order of the audit observations dated 15.3.2021 to the AO on 17.3.2021 (placed at pages 180 to 181 of the paper book). Further on going through the ledger copy of M/s. Gandhi Iron & Steel Company (placed at pages 145 to 149 of the paper book), we take note of the fact that the assessee had made total purchases from M/s. Gandhi Iron & Steel Co. amounting to Rs.2,53,28,826/- out of which the AO had alleged Rs.97,57,825/- only as bogus. The only allegation made by the authorities below is that the assessee has claimed to have purchased goods but there is no actual movement of goods as per the report of the Commercial tax department. We are of the considered opinion that the AO had merely relied upon the information received from Commercial Tax department (GST) without carrying out any independent enquiry. We are of the considered opinion that the AO had failed to demonstrate as to how only purchases amounting to Rs. 97,57,825/- were bogus out of total purchases of Rs. 2,53,28,826/- M/s. Maloo Constructions (India) Pvt. Ltd., Bangalore Page 8 of 10 . Further, the invoices, E-way bills, bank statement, GST return, Form GSTR-2A along with ledger copy of M/s. Gandhi Iron & Steel Company were also produced before the lower authorities which also not found to be fake and therefore, the entire addition based on the sole information from the third party agency is illegal & bad in law. The AO ought not to have made addition without carrying out any independent enquiry and without offering due opportunity to the assessee to controvert REIC report. Further, on going through the audit observation dated 15.3.2021 by the GST Authority produced before the AO & Ld. CIT(A)/NFAC, we take a note of the fact that input tax credit availed on inward supply of goods from M/s. Gandhi Iron & Steel Company was only reversed as the assessee had contravene the provisions of Rule 37 of CGST Rules, 2017 read with Second proviso to section 16(2) of CGST Act, 2017 as the assessee failed to make payment to the supplier within the time limit of 6 months.
9.1 We are of the opinion that both the authorities below have also not brought on record any adverse material to show that the alleged purchases were bogus. Further, on going through the audit observations of CGST department, we take a note of the fact that there is not even a whisper in the audit observation of the ld. Superintendent that the purchases made from M/s. Gandhi Iron & Steel Co. are bogus as without actual movement. In fact the input tax credit had been proposed to be reversed as the assessee company had delayed in making payment of the amount towards the value of supply along with tax payable thereon beyond a period of 180 days from the date of issue of invoice by the supplier i.e M/s. Gandhi Iron & Steel Co. Therefore, we find no reason to disbelief the genuineness of purchases made by the assessee.
9.2 Further, we also rely on the decision of Hon’ble High Court of Bombay in the case of PCIT Vs. Shapoorji Pallonji & Company Ltd. cited (supra), which has also been affirmed by the Apex Court in which it was held as 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.
We are in agreement with the views expressed by the Tribunal. Merely on suspicion based on information received from another authority, the assessing officer ought not to have made the additions without carrying out independent enquiry and without affording due opportunity to the respondent – assessee to controvert the statements made by the sellers before the other authority. Accordingly, we do not find any good ground to entertain this question for consideration as well.
9.3 In view of the above discussion and relying on the decision of Hon’ble Bombay High Court as above, we held that the purchases made by the assessee are genuine and disallowance as made by the AO are not justified and accordingly we direct the AO to delete the addition of Rs.97,57,825/-.
In the result, appeal of the assessee is allowed.