Revenue Cannot Disallow Purchases As Bogus After Accepting Corresponding Sales: ITAT Ahmedabad

The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) has recently quashed the reopening of an assessment and deleted an addition of ₹22.47 crore made against a trader in copper scrap and ingots, holding that the Revenue failed to establish that the purchases were bogus despite accepting the corresponding sales.

A tribunal comprising Judicial Member Sanjay Garg and Accountant Member Annapurna Gupta observed:

"If the assessee has made the sales, it is obvious that he has also made the purchases. It is also not the case of the AO that the assessee had made the purchases in question from some other party or from grey market.The impugned order of the AO and the appellate order of the CIT(A) are not based on any reasonable findings given after appreciation of the evidences furnished by the assessee. Therefore, the impugned additions made/confirmed by the lower authorities are not sustainable, the same are accordingly, ordered to be deleted."

The taxpayer, who carried on business under the name Bhumi Enterprise, had filed returns declaring business income. The assessment was reopened after the Investigation Wing flagged the assessee as a beneficiary of alleged bogus purchase invoices issued by Pooja Enterprises.

Relying on the Investigation Wing's report, the Assessing Officer treated purchases worth ₹22.47 crore as unexplained business expenditure and added the entire amount to the assessee's income. The Commissioner (Appeals) upheld the addition.

The tribunal found that the Assessing Officer had not pointed out any defect, shortcoming or infirmity in the evidence produced by the assessee to establish the genuineness of the purchases. Instead, it held that the Assessing Officer had relied primarily on an unsubstantiated and uncorroborated report of the Investigation Wing without properly examining the material placed on record.

The tribunal also noted that the GST Department had scrutinised the assessee's input tax credit claim relating to transactions with the same supplier. After considering the assessee's reply, it accepted the explanation and closed the proceedings without taking any further action.

The tribunal observed, "The AO has not pointed out any defect, short coming or infirmity in the evidences furnished by the assessee to prove the genuineness of the purchases. The AO has merely acted upon the unsubstantiated and uncorroborated report of the Investigation Wing, without properly examining the matter even during the assessment proceedings."

On the validity of the reassessment proceedings, the tribunal held that the Assessing Officer had reopened the assessment solely on the basis of information received from the Investigation Wing without conducting the inquiries required before issuing the reassessment notice or properly considering the assessee's explanation and supporting documents.

The tribunal observed,"The reopening of the assessment in this case, is, therefore, held as bad in law and hence, the consequential assessment order passed under section 147 of the Act is not sustainable and the same is, therefore, quashed."

It further observed, "The impugned order of the AO and the appellate order of the CIT(A) are not based on any reasonable findings given after appreciation of the evidences furnished by the assessee. Therefore, the impugned additions made/confirmed by the lower authorities are not sustainable, the same are accordingly, ordered to be deleted."

The tribunal consequently set aside the Commissioner (Appeals)' order and allowed the assessee's appeals for the 2019-20 and 2020-21 assessment years.