Bogus purchase treatment in a year doesn’t make it bogus in all years: ITAT Kolkata

A. P. Fashion Pvt. Ltd. Vs Pr. CIT (Central)-2) (ITAT Kolkata)

ITAT Kolkata held that treating purchases from concern as bogus merely because for another year purchases from the said concern were treated by AO as bogus is not justified since in relevant year AO duly treated the purchases as genuine.

Facts- Post survey action and addition towards bogus purchases, PCIT exercising his revisional jurisdiction u/s.263 of the Act observed that for the year under consideration, the assessee had also shown purchases of Rs.84,41,255/- from Afterlink Vinimay Pvt. Ltd. and that the said company has been noted by the AO as shell company providing bogus billing in respect to purchases made for FY 20 17-18. He, therefore, held that the AO was also supposed to hold the purchases made by the assessee from AVPL for the year under consideration as bogus. He, therefore, exercising his revisional jurisdiction u/s.263 of the Act set aside the assessment order passed u/s. 147 of the Act and directed the AO to make necessary verification/inquiry on the aforesaid issue and pass a fresh assessment order.

Conclusion- Held that AO has duly examined the records and treated the aforesaid purchases as genuine. Merely because, for another year the purchases made by the assessee from the said concern AVPL have been treated by the AO as bogus, that in itself, in our view, cannot be made the sole basis to treat the purchases made by the assessee from the said concern for the year under consideration as bogus. Therefore, the revision order passed by the Ld. Pr. CIT is not sustainable and the same is accordingly, quashed. However, it is made clear that our observation made in this order will not have any bearing relating to the validity of the purchase/additions made by the AO in respect of the purchases made from other parties or from the same party in an another assessment year. The validity of the same will be examined in the respective assessment/appellate proceedings and the finding, given herein, will not have any bearing upon the same. With the above observation, the appeal of the assessee is treated as allowed.

FULL TEXT OF THE ORDER OF ITAT KOLKATA

The present appeal has been preferred by the assessee against the revision order dated 20.03.2024 of the Ld. Pr. Commissioner of Income Tax, (Central)-2, Kolkata [hereinafter referred to as the “Ld. PCIT”] passed u/s. 263 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) for AY 2017-18.

2. Brief facts of the case are that the assessee filed its original return of income u/s. 139 of the Act on 03.11.2017 declaring total income of Rs.74,54,260/-. Thereafter, scrutiny assessment was carried out u/s. 143(3) of the Act on 20.12.2019 and the total income of the assessee was assessed at Rs.81,90,620/-.

3. Earlier, a search action was carried out u/s. 132 of the Act one Shri Kamal Kumar Jain an alleged entry operator on 20.05.2018. Thereafter, a survey action was again carried out on a subsequent date in the premises of said Shri Kamal Kumar Jain and his statement was recorded u/s. 131 of the Act, wherein, he admitted to have provided accommodation entries by way of bogus billing/unsecured loans/share capital etc. to various parties through the entities managed by him. The assessee company namely, M/s. A. P. Fashion Pvt. Ltd. was also noted to be one of the beneficiary of bogus billing provided by the companies managed and controlled by Shri Kamal Kumar Jain. Thereafter, a survey action was carried out in the premises of the assessee u/s. 133A of the Act on 30.10.2019. During the survey operation at the premises of the assessee, statement of director of the assessee company namely, Shri Ashok Kumar Jhunjhunwala was He was confronted with the statement recorded of Shri Kamal Kumar Jain during a separate survey action carried out upon Shri Kamal Kumar Jain. On being confronted, Shri Ashok Kumar Jhunjhunwala admitted that he had taken accommodation entries/bogus billing from the said company managed by Shri Kamal Kumar Jain. He admitted the total bogus purchase of Rs. 13,30,41,731/-, the details of which are as under:

4. Thereafter, the assessment was reopened in the case of the On scrutinizing the report, it was noted that the aforesaid bogus purchases were relating to Financial Year 20 17-18 relating to Assessment Year 20 18-19. However, from further scrutiny of therecords including purchase ledger etc., it was noticed that the assessee had made purchase from some other shell companies also. The details of which is as under:

5. Since after the scrutiny of the entire data, the purchases for year under consideration i.e. FY. 20 16-17 relevant to AY 20 17-18 from Gangadhar Distributors Pvt. Ltd. amounting to Rs.53,48, 160 were found to be bogus, therefore, the AO made the addition of the said amount of Rs.53,48, 160/- for the year under consideration.

5.1. Thereafter, the Ld. PCIT exercising his revisional jurisdiction u/s.263 of the Act observed that for the year under consideration, the assessee had also shown purchases of Rs.84,41,255/- from Afterlink Vinimay Pvt. Ltd. (in short ‘AVPL’) and that the said company has been noted by the AO as shell company providing bogus billing in respect to purchases made for FY 20 17-18. He, therefore, held that the AO was also supposed to hold the purchases made by the assessee from AVPL for the year under consideration as bogus. He, therefore, exercising his revisional jurisdiction u/s.263 of the Act set aside the assessment order passed u/s. 147 of the Act and directed the AO to make necessary verification/inquiry on the aforesaid issue and pass a fresh assessment order.

6. Being aggrieved by the said order of the Ld. Pr. CIT the assessee is in appeal before us.

7. We have heard the rival contentions and perused the material available on record. The Ld. Counsel for the assessee has submitted that not only during the survey action, but also, during the assessment proceedings, the entire record, purchase ledger etc. have been duly examined by the AO and thereafter, the AO came to the conclusion of bogus purchases relating to different assessment years. He has submitted that without prejudice to the rights of the assessee to challenge the addition made by the AO in different assessment years, the assessee in this appeal contest the action of the Ld. Pr. CIT in holding the assessment order for the year under consideration as erroneous and prejudicial to the interest of the revenue on the ground of not treating the purchase made by the assessee from AVPL as bogus. The Ld. Counsel in this respect has submitted that the assessee is involved both in trading and manufacturing of textile items. He has demonstrated from the report that for the year under consideration the assessee had made purchase of finished articles i.e. sarees etc. from AVPL and it was a trading item. That the assessee had duly made the sales and offered the profit earned for taxation. That the sales made by the assessee have been admitted by the Department and the profit offered by the assessee on such sales has also been accepted. He in this respect has invited our attention to page 2 of the impugned order of the Ld. Pr.CIT, wherein, the item wise details of the purchases made by the assessee from AVPL has been recorded. The chart for the sake of ready reference is reproduced as under:

8. The Ld. Counsel for the assessee in this respect has submitted that the items mentioned in the said chart are finished articles i.e. fancy sarees. He, in this respect has submitted that the said finished sarees have been further sold by the assessee. He has submitted that the said item of purchases was not a raw material which can be adjusted in the manufacturing process with the purpose to overstate the expenses and suppress the true profits. The Ld. Counsel has further invited our attention to pages 14 and 15 of the paper book which is a chart showing the purchases from AVPL and subsequent sales which resulted in profit of Rs.6,04,235/-, which was taken into account at the time of offering the income of the assessee. The Ld. Counsel has further submitted that since the sales have been admitted by the department and even the profit on such sales has also been offered to tax, therefore, there was no question to doubt the purchases made for the year under consideration from AVPL. The Ld. Counsel inviting our attention to the assessment order has submitted that the AO has duly examined the purchase ledger and record of the assessee, whereby, he did not find the purchases made by the assessee from AVPL for the year under consideration as bogus. He has further submitted that though the AO has reported the purchases for the year under consideration from Gangadhar Distributor Pvt. Ltd. and for other years from different entities as bogus, however, the assessee reserves its rights to contest the same. He has submitted that so far as the action of the Ld. Pr. CIT in exercising his revisional jurisdiction u/s. 263 of the Act observed that the AO should have also treated the purchases for the year under consideration from AVPL as bogus was not justified.

9. The Ld. DR, on the other hand, has relied on the finding of the Ld. CIT.

10. After considering the rival submissions, we firstly note that the physical stock has been examined during the survey action at the premises of the assessee and secondly, the AO has also scrutinized the account of the assessee during assessment proceedings and found certain purchases for different assessment years from different parties as bogus including the purchases made by the assessee from AVPL in FY 2017-18. However, in the year under consideration the AO did not find any discrepancy etc. relating to the purchases made by the assessee from AVPL. He, therefore, did not make addition in respect of the purchases made from said concern for the year under consideration. Moreover, the Ld. AR of the assessee has also demonstrated that the assessee had made the purchases of sarees i.e. finished products from AVPL in the year under consideration and which were sold and profit earned has been offered to tax. Sales have been admitted and profit offered by the assessee has also been accepted by the department. The items purchased by the assessee for the year under consideration from AVPL were trading items and there was no question of inflation of expenditure in respect of the said purchases in the garb of raw material etc. The AO has duly examined the records and treated the aforesaid purchases as genuine. Merely because, for another year the purchases made by the assessee from the said concern AVPL have been treated by the AO as bogus, that in itself, in our view, cannot be made the sole basis to treat the purchases made by the assessee from the said concern for the year under consideration as bogus. Therefore, the revision order passed by the Ld. Pr. CIT is not sustainable and the same is accordingly, quashed. However, it is made clear that our observation made in this order will not have any bearing relating to the validity of the purchase/additions made by the AO in respect of the purchases made from other parties or from the same party in an another assessment year. The validity of the same will be examined in the respective assessment/appellate proceedings and the finding, given herein, will not have any bearing upon the same. With the above observation, the appeal of the assessee is treated as allowed.

11. In the result, the appeal of the assessee stands allowed.

Order is pronounced in the open court on 18^th November, 2024.