Globe Infraconstructions Pvt Ltd Vs DCIT (ITAT Visakhapatnam)
Conclusion: Addition of ₹11.14 crore on account of alleged bogus purchases could not be sustained without first verifying the assessee’s claim that purchases worth approximately ₹11.07 crore had been reversed in its books and were never claimed as a deduction while computing taxable income. Accordingly, Tribunal set aside the issue to AO for fresh examination. However, the Tribunal upheld the disallowance of 50% of the labour expenses, amounting to ₹16.76 lakh, observing that assessee had failed to furnish adequate documentary evidence to substantiate the expenditure.
Held: Assessee-company was engaged in infrastructure and commercial construction, had declared an income of ₹2.04 crore. During scrutiny, AO found that the company had recorded purchases from 17 suppliers, many of whom had not filed income tax returns or had inactive GST registrations. Notices issued under Section 133(6) revealed that most suppliers were either non-existent or denied any transactions with the assessee. While one supplier, Harsha Infra Projects Pvt Ltd, confirmed transactions worth ₹67.74 lakh, AO treated the remaining purchases of ₹11.14 crore as bogus and added them to the income. AO also disallowed 50% of the claimed labour charges of ₹33.53 lakh, citing a lack of verifiable records such as muster rolls, wage sheets, or PF/ESI details. CIT(A) rejected assessee’s plea to admit additional evidence under Rule 46A, observing that the company had multiple opportunities during assessment but failed to furnish supporting documents. It also noted that the explanation of reliance on “middlemen” for discounted supplies was unconvincing, as no agreements or correspondence were produced. The disallowance of 50% labour charges was deemed reasonable given the absence of statutory records and the cash nature of payments. Assessee argued that the authorities had misconstrued facts and ignored evidence showing reversal of purchase entries and GST input credits. Further, since the purchases were cancelled and reversed, the addition of ₹11.14 crore as bogus purchases was unjustified. Regarding labour charges, assessee maintained that payments were made to daily‑wage workers hired from local sites, who lacked PAN or formal identification, and that the absence of PF/ESI records should not invalidate genuine expenditure supported by vouchers. Revenue argued that the assessee failed to furnish documentary evidence during assessment despite repeated notices under sections 142(1) and 143(2). Also, the revenue stated that mere book entries or reversals without delivery challans, transport documents, or supplier confirmations cannot prove genuineness. It was held that an addition on account of alleged bogus purchases could not be sustained merely because the transactions were found to be doubtful, if the assessee demonstrates that such purchases were subsequently reversed and were never claimed as a deduction in the Profit & Loss Account. Observing that the lower authorities had failed to verify the assessee’s claim that purchases worth approximately ₹11.07 crore had been reversed and excluded from expenditure, the Tribunal restored the matter to AO for fresh examination. Tribunal directed AO to verify whether the disputed purchases formed part of the cost of materials consumed or any other expenditure claimed in the accounts. If it was established that no deduction was claimed in respect of the reversed purchases, the corresponding addition was to be deleted. However, the Tribunal upheld the disallowance of 50% of labour expenses amounting to ₹16.76 lakh, noting that the assessee failed to furnish reliable supporting evidence such as identity details of labourers, attendance records, wage registers, or other corroborative documents to substantiate the claim.
