Vendor’s Non-Response Cannot Render Genuine Payment Bogus or Trigger Section 69C: ITAT Kolkata

Mrignayani Cosmetics Private Limited Vs ITO (ITAT Kolkata)

Vendor’s Non-Response Cannot Make Genuine Payment Bogus; Purchase Neutralised by Closing Stock Cannot Be Added Under Section 69C: ITAT Kolkata

Summary: The Kolkata Bench of the Income Tax Appellate Tribunal has deleted additions aggregating to ₹38,95,275 under Section 69C, holding that an assessee cannot be penalised merely because its vendor failed to respond to a notice under Section 133(6), particularly when the assessee had produced invoices, bank statements, TDS details, GST records and audited books. The Tribunal further held that no addition could be made for purchases which remained in closing stock and were returned in the succeeding year. Since the purchase debit was fully neutralised by the corresponding credit to closing stock, the transaction had a nil impact on taxable income.

Facts of the case

The assessee-company was engaged in construction and real estate. It filed its return for Assessment Year 2018-19 declaring total income of ₹1,80,280.

Based on information received through the Insight Portal, the Assessing Officer alleged that the assessee had entered into bogus transactions with two concerns:

• labour and manpower services of ₹13,44,000 from M/s Barbarik Consultancy Private Limited; and
• purchases of ₹25,51,275 from M/s Saraff Enterprises.

Proceedings under Sections 148A and 148 were initiated. Although the assessee filed a return in response to the Section 148 notice, the Tribunal noted that the assessment order did not acknowledge that return.