Milan Electric Corporation Vs ITO (ITAT Mumbai)
No Profit Element on Bogus Purchases Where Goods Are Returned – Once Purchases Are Returned, No Scope for 12.5% Bogus Addition
In the case of assessee, engaged in trading of electronic items, faced reassessment on the basis of information from the Sales Tax Department that it had made purchases from alleged hawala/bogus suppliers.
AO alleged purchases worth ₹32.45 lakh from three parties to be non-genuine & added 12.5% (₹4.05 lakh) to Assessee’s income as profit element of bogus purchases. CIT(A) sustained the addition.
Before the Tribunal, Assessee argued that purchases were genuine but returned. Assessee furnished complete trail showing that the goods purchased were sold to reputed customers but were later rejected due to quality issues & returned. Documentary evidences filed included Purchase invoices, sales invoices to customers, rejection letters from customers, transport challans/lorry receipts, Credit notes issued to customers, debit notes issued to suppliers, VAT records amended & accepted by the VAT Department, proving transactions were duly accounted. AO made no independent inquiry from either suppliers, customers, or transporters & also did not provide cross-examination of alleged bogus parties.
Tribunal noted that Assessee had demonstrated with cogent documents that the entire goods were sold & later returned, resulting in reversal of financial impact in the books. Revenue authorities ignored vital evidence & brushed aside VAT acceptance. AO’s assumption that assessee had not effected sales was contrary to facts. Since the purchases were fully returned, no profit element remained to be added.
