Bogus purchases Addition justified if based on evidences instead of sworn statements

BGR Energy Systems Ltd. Vs ACIT (ITAT Chennai)

Conclusion: Additions made by AO was not only on the basis of sworn statement but also on the basis other evidences collected during the course of search including discrepancies in books of accounts regarding accounting of bogus purchases therefore, there was no merit in arguments of assessee that AO had made additions towards alleged purchases only on the basis of statement recorded from those parties without further evidences.

Held: Assessee-company was engaged in the business of manufacture of capital goods and in construction of EPC contracts. A search and seizure operations u/s.132 was carried out in the case of assessee. AO had made additions towards purchases from certain alleged bogus suppliers on the ground that assessee could not substantiate purchase from those parties with necessary evidences. During the course of search, certain bill books/purchase invoices belonging to five concerns were found and seized. AO was of the opinion that assessee was indulged in obtaining accommodation entries of bogus purchase bills from non­existence suppliers to inflate expenses. According to AO, assessee had followed meticulous standard operating procedures for purchases in their books of accounts in SAP software. AO found that in respect of purchase from the five parties, assessee did not follow standard operating procedures.  Therefore, he opined that purchases from alleged five parties were bogus in nature which were not supported by necessary evidences and hence, made additions to total income. It was held that sworn statement was not conclusive evidence in order to make any additions. AO had to bring on record corroborative evidences to support the confession statement taken during the course of search. In this case, additions made by AO was not only on the basis of sworn statement but also on the basis other evidences collected during the course of search including discrepancies in books of accounts regarding accounting of those purchases. As per fact brought out by AO, assessee had followed meticulous SOP for purchases whereas, for the purchases from these five parties said SOP was missing. Assessee group did not have supporting documents and evidences to show that they had made purchases from those parties. If the purchases were genuine, assessee could have produced necessary evidences and also produced those parties when AO called upon assessee to produce those parties for verification. Although, AO had traced out those parties by using his statutory powers and obtained statements from them, but assessee had failed in its duties to produce the parties when AO had called upon to do so. It was very clear that the so called parties were not directly in connection with assessee and assessee had arranged bogus bills through intermediaries.  Therefore, there was no merit in arguments of assessee that AO had made additions towards alleged purchases only on the basis of statement recorded from those parties without further evidences.

FULL TEXT OF THE ORDER OF ITAT CHENNAI

This bunch of four appeals in ITA Nos.23, 24, 25 & 116/Chny/2018 filed by the assessee are directed against separate orders of learned Commissioner of Income Tax (Appeals)-19, Chennai, dated 26.10.2017 & 27.10.2017 and pertains to assessment years 2011-12 to 2014-15. The three appeals in ITA Nos.1510 to 1512/Chny/2018 filed by the Revenue and cross objections filed by the assessee are directed against common order of learned Commissioner of Income Tax (Appeals)-19, Chennai dated 20.02.2018 and pertains to assessment years 2011-12 to 2013-14. Since, facts are identical and issues are common, for the sake of convenience these appeals are heard together and are being disposed off, by this consolidated order.

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