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Facts
The assessee, engaged in export of IT services, made purchases of Rs. 42,90,585/- from two parties. The Assessing Officer (AO) and Commissioner of Income Tax (Appeals) (CIT(A)) disallowed these purchases, treating them as bogus due to non-existent suppliers and the assessee's failure to produce them or complete books of account. The CIT(A) also pointed out several discrepancies in the purchase bills.
Held
The Tribunal found that the AO accepted sales receipts but disallowed the entire purchases, which lacked logic as sales could not exist without purchases. It also noted that the AO did not formally reject the books of account under section 145(3) or estimate gross profit. The Tribunal debunked the discrepancies noted by the CIT(A), concluding that the addition was not justified.
Key Issues
Whether the addition on account of bogus purchases was justified when sales were accepted, and whether such disallowance could be made without rejecting the books of account under section 145(3).
Sections Cited
143(1), 143(2), 133(6), 131, 145(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘G’, NEW DELHI
Before: Dr. B. R. R. KumarSh. Anubhav Sharma
ORDER
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal has been filed by the assessee against the order of ld. CIT(A)-I, Noida dated 05.02.2015. 2. Following grounds have been raised by the assessee:
“1. On the facts and in the circumstances of the case and in law the Commissioner of Income-tax (Appeals) erred in passing the order without appreciating the submissions of the assessee.
2. The appellant prays that the addition of Rs.42,90,805/- made by the Assessing Officer on account of bogus purchases be deleted.”
The assessee is engaged in the business of export of I.T. & I.T. enabled services. The assessee filed return of income on 14.10.2010 declaring income of Rs.7,91,720/-. The return was processed u/s. 143(1) and thereafter the case was selected for scrutiny and statutory notice u/s. 143(2) dated 27.09.2011 was 2 Flexsin Technologies Pvt. Ltd. issued and duly served upon the assessee. During the assessment proceeding, the Assessing Officer found that the assessee had made huge amount of purchase totaling Rs.42,90,585/- from two parties at the fag end of the financial year as per details given below:
Name of the party Amount of purchase/Sundry creditors 1. M/s. Balaji enterprise Rs. 21,81,805/- 2. M/s. Ganoati Trading Company Rs. 21,08,780/- TOTAL Rs.42,90,585/-
During the assessment proceedings, the assessee was enquired to establish the genuineness and source of above purchases. After enquiries and examinations, the AO held above purchases amounting Rs.42,90,805/- as bogus und accordingly the same was disallowed and added to the income of the assessee.
Aggrieved, the assessee filed appeal before the ld. CIT(A) who affirmed the order of the Assessing Officer.
The operative portion of the order of the ld. CIT(A) is as under:
“In this regard, to verify the genuineness of the purchases, notices u/s. 133(6) were sent to the above two parties on the address provided by the assessee. However, no reply was received from above two suppliers. Thereafter, summons u/s. 131 dated 4/2/2013 were issued to the parties and Inspector was deputed for enquiry regarding existence of the supplier firms. After detailed spot enquiries the Inspector has reported that the two supplier firms are nonexistent on the given 3 Flexsin Technologies Pvt. Ltd. address. On perusal of the assessment order I find that the AO has brought on record sufficient material to show that these two supplier firms are bogus and none-existent at the given addresses. This fact was duly confronted to the assessee requiring him to explain and prove the identity and genuineness of the above purchase transactions. Vide order sheet entry dated 07/3/2013 the assessee was specifically asked to either produce both the parties or give correct postal address falling which the impugned purchase would be treated as bogus. However, there was no response and neither the suppliers were produced nor current postal addresses were furnished. Besides, the assessee was also asked to produce complete books of account along with supporting bills and vouchers which were never produced before the A.O. However, assessee merely produced copy of ledger account and thus the assessee was once again asked to produce complete books of account which was never produced before the A.O. for the reasons known to the assessee only.
On examination of bills the AO also found that around 45% of combined sales were achieved in last two months i.e. February and March, 2010 and this was not possible without making purchases from outside parties so as to meet their export commitments. Moreover the, assessee has also failed to produce documentary evidence whatsoever so as to prove that during the financial year under consideration it was engaged in I.T. and IT enabled services and that assessee was engaged in software export.
4 Flexsin Technologies Pvt. Ltd. However, on perusal of purchase bills and ledger accounts of above two parties the AO has pointed out certain discrepancies as under:-
The bills of both firms are computer generated and prepared on same computer.
Bills Font & Design are the same of both the firms. 3. No telephone Numbers are mentioned in both the bills. 4. Surprisingly it was noticed that the TIN Number of both the parties are same mentioned i.e. 09165706399. which clearly indicates that all these bills are bogus. 5. The assessee deliberately not produced both the parties, which is evident from the reply submitted on 21.03.2013 that on one hand he is giving confirmed copy of account of both the parties but on the hand not producing parties and even not giving the current postal address. 6. The assessee has shown payment of Rs.9,95,537/- through cheque to M/s Ganpati Trading Co., and shown payment of Rs. 16,85,013/- to M/s Baiaji Enterprises though NEFT on the last day of financial year i.e. 31.03.2010 and balance amount is shown as sundry creditors.
Taking all the above into consideration and in the light of AO’s finding I am convinced that AO has made enquiries to bring on record sufficient material to challenges the genuineness of the purchases from both the parties whereas on being confronted the assessee has not been able to rebut/controvert above findings. Besides, the assessee has also failed to produce complete books of 5 Flexsin Technologies Pvt. Ltd. accounts along with bills and vouchers. Further the AO has also pointed out certain discrepancies with respect to purchase and ledger accounts of above two suppliers which have not been contested by the assessee in the assessment proceeding. Moreover, the so called suppliers were also not produced before the AO.
In the light of above facts and discussion thereon I am convinced that the trading results shown by the assessee cannot be relied upon' in the light of above findings and that it is a fit case for invoking the provisions of section 145(3) so as to reject the books of accounts. Even during the appellate proceeding the appellant has not come out with any hew facts or evidence so as to establish the genuineness of above transactions. The appellant has also failed to explain during the appellate proceeding the reasons for not producing the complete books along with supporting bills/vouchers. I have considered the appellant's submission furnished before me and find the same devoid of merit and the same are thus being rejected. Notwithstanding above I am fully convinced without any doubt that despite having been given reasonable time and sufficient opportunity the assessee has failed to discharge his onus in proving the nature, source and genuineness of impugned purchases from above two suppliers and therefore AO was fully justified in holding the same as bogus purchases made to suppress the profit. Accordingly the addition of Rs.42,90,805/- made by the AO is upheld.”
Aggrieved, the assessee filed appeal before the Tribunal.
6 Flexsin Technologies Pvt. Ltd. 8. Heard the arguments of both the parties and perused the material available on record.
The issues flagged by the ld. CIT(A) are examined with the backdrop of the issue.
The bills of both firms are computer generated and prepared on same computer.
Nowadays, all the bills are generated from the computers and there was no evidence on record to prove that the bills are prepared on the same computer.
Bills Font & Design are the same of both the firms. No adverse inference can be drawn on such issue. No telephone Numbers are mentioned in both the bills. No adverse inference can be drawn on such issue.
Surprisingly it was noticed that the TIN Number of both the parties are same mentioned i.e. 09165706399. which clearly indicates that all these bills are bogus.
The TIN number referred by the ld. CIT(A) belongs to the assessee and hence it is bound to be the same on all the bills. The observation of the ld. CIT(A) is incorrect.
The assessee has shown payment of Rs.9,95,537/- through cheque to M/s Ganpati Trading Co., and shown payment of Rs. 16,85,013/- to M/s Balaji Enterprises though NEFT on the last day of financial year i.e. 7 Flexsin Technologies Pvt. Ltd. 31.03.2010 and balance amount is shown as sundry creditors.
On verification of the record, it was found that while payment of Rs.9,95,537/- through cheque to M/s Ganpati Trading Co., and Rs. 16,85,013/- to M/s Balaji Enterprises though NEFT on the last day of financial year i.e. 31.03.2010 has been made the remaining amounts have been paid in the subsequent year. Hence, no adverse inference can be drawn.
The assessee deliberately not produced both the parties, which is evident from the reply submitted on 21.03.2013 that on one hand he is giving confirmed copy of account of both the parties but on the hand not producing parties and even not giving the current postal address.
The transactions took place in February and March, 2021. The AO asked the assessee on 21.03.2013 to produce books of accounts on 22.03.2013 which is just after a day. The AO at page no. 5 of the Assessment Order admitted that the assessee company has produced copies of bills of M/s Ganpati Trading Company and by M/s Balaji Enterprises along with confirmed copies of the ledger accounts. Thus, the confirmations were available before the AO. Further, we have gone through the report of the Inspector with regard to M/s Ganpati Trading Company wherein he met the wife who replied that “my husband is running the business of computer but I don’t know in detail.” She has also provided mobile number of Sh. Ram Prakash to the Inspector. The total export sales was 8 Flexsin Technologies Pvt. Ltd. Rs.1,84,18,698/- and the total purchases of Rs.42,90,805/- from these two parties only. The AO has treated the entire purchases as bogus while accepting the export sales of Rs.1,84,18,698/- There could not have been any export without purchase of material. The material purchased as per the invoices is as under:
Name of the Description of goods Invoice Date QTY Amount firm No. M/s Balaji Content Management 345 03.03.2010 4 4,08,735 Enterprises System (CMS) -do- Product Comparison 347 05.03.2010 6 5,27,861 System -do- E-Commerce Software 352 10.03.2010 5 4,23,528 -do- Content Management 356 14.03.2010 3 System (CMS) Invoice System 356 14.03.2010 5 6,37,581 -do- E-Commerce Software 357 14.03.2010 2 1,84,098 M/s Ganpati ERP-Attendance & Payroll 154 04.02.2010 2 5,49,140 Trading Co. -do- On line Bidding 155 05.02.2010 1 1,72,634 Application -do- Mobile Application for 156 05.02.2010 6 6,28,908 location search -do- ERP-Attendance & Payroll 192 24.02.2010 1 3,19,986 -do- ERP-Attendance & Payroll 201 28.02.2010 1 Mobile application for 1 4,38,120 location service Total purchases 42,90,591
The Assessing Officer has accepted the sale receipts but disallowed the entire purchases. There could not have been any sales without purchases. The books of accounts have not been rejected by the AO, as required u/s 145(3) of the Income Tax Act, 1961, without rejecting the books of accounts and without estimating any gross profit, while accepting the entire sales at the same time disallowing the entire purchases is beyond any rhyme & reasons sans logic. Hence, the addition made is liable to be deleted.