DCIT Vs Salem Mines and Aggregates (ITAT Chennai)
Chennai ITAT: Bogus Purchase Addition Cannot Rest on Suspicion; Search Data Must Be Corroborated with Independent Evidence
The Chennai ITAT delivered an extensive ruling holding that additions towards alleged bogus purchases and suppressed profits cannot be sustained merely on the basis of incomplete seized Tally data, assumptions, or suspicion. During a search, the Revenue relied upon seized electronic accounting data to allege suppression of profits and treated purchases of aggregates from certain suppliers as bogus. However, the Tribunal noted that the assessee had subsequently furnished a detailed reconciliation explaining that the seized Tally data represented incomplete books, in which several expenditure items had not been transferred to the Profit & Loss Account, thereby artificially inflating profits. The Investigation Wing itself accepted a substantial part of this reconciliation during the post-search proceedings.
The Tribunal upheld the deletion of additions relating to purchases from suppliers whose identity, GST registration, PAN, statutory records, banking transactions, and corresponding sales stood established. It observed that the Revenue had not unearthed any incriminating material during the search to show that the suppliers were fictitious, that the invoices were accommodation entries, or that money had flowed back to the assessee. It also noted that the GST authorities had accepted the transactions, the suppliers themselves had confirmed the sales, and the corresponding sales made by the assessee had never been disputed. In such circumstances, purchases could not be branded as bogus merely because of conjectures regarding mining activity, inward movement of goods, or deficiencies in the suppliers’ records.
The Tribunal further held that electronic data seized during search is only a starting point for investigation and cannot, by itself, constitute conclusive evidence when the assessee furnishes a credible reconciliation supported by books of account and documentary evidence. It emphasised that additions under the Income-tax Act must rest on cogent corroborative material, and not on presumptions or theoretical possibilities. At the same time, where the assessee failed to produce sufficient evidence to substantiate purchases from a particular supplier, the Tribunal sustained the disallowance relating to that supplier. Thus, the appeals were disposed of by granting relief in respect of substantiated purchases while sustaining additions only where the assessee failed to discharge its burden of proof.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
