The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) has held that non-attendance of summons could not be the sole reason for disallowance under Section 69C of the Income Tax Act 1961, when sufficient evidence was produced to prove the genuineness of purchases.
Search under Section 132 of the Income Tax Act was conducted against the K Raheja Group, the Assessing Officer had reopened the six assessment years immediately preceding the searched assessment year, i.e. AY 2018-19 and those AYs were AYs 2012-13 to 2017-18.
For AY 2012-13, the assessee had filed original return of income declaring total loss. The income tax scrutiny assessment on 03.03.2015 at a total income of Rs. NIL. As the search was conducted this AY 2012-13 was, therefore, an unabated assessment. After the search was conducted, the assessee filed a return in response to notice under Section 153A of the Income Tax Act and thereafter statutory notices were issued calling for several information/details.
The AO noted that in the course of search, the statement of N Krishnamohan, Vice President, Engineering of K Raheja group was recorded, In the course of recording of statement he required to provide the details of purchases and contractual payments made towards various projects undertaken by the Group at Bangalore, among that included purchases and contractual payments along with sample bills, which were executed by the assessee i.e. Chalet Hotels Ltd. and Magna Warehousing and Distribution Pvt Ltd & M/s Genext Hardware & Parks Pvt. Ltd. (both of which have since merged with the assessee).
The AO noted that the Investigating Officer had brought to the notice of Mr. N Krishnamohan that eight vendors were not found at their given Bangalore addresses. The AO noted that in the post search proceedings, the assessee had provided, (i) details of their new address/closure, (ii) status and PAN, (iii) company master data, (iv) relevant extracts from party’s websites, (v) copy of ledger and (vi) copies of invoices and work orders. In light of these findings noted by the Investigation Authorities, the AO is noted to have issued summons u/s 131 to all the eight parties and only two (2) parties had responded to the summons and the following six (6) parties either did not reply or the summons were returned unserved.
Therefore, to ascertain the genuineness of the payments to the above-mentioned six parties, the AO made enquiries and according to the AO, however, either these notices remained un-served or the replies received from them were not satisfactory. The AO observed that, mere filing of supporting bills/invoices and payment details, was not sufficient to justify the genuineness of the transactions and disallowed the payments made to these parties by way of unexplained expenditure under Section 69C of the Income Tax Act across various years.
Madhur Agrawal, on behalf of the assessee contended that the assessee was engaged in the real estate business and out of the several hundred different vendors, which were engaged in the construction of the hotel, genuineness of only six vendors had been doubted by the AO. They also expectedly after completion of the project, these vendors would have closed down their site and the search action had taken place 4-5 years after completion of the project and that in the course of search.
One of the vendors, M/s Total Environment Woodworks Pvt Ltd. was undergoing Corporate Insolvency Resolution Proceedings and therefore the Board of this company had remitted their office and it was submitted that the non-compliance by this particular vendor also could not have been viewed adversely and therefore mere non-compliance of summons could not be reason enough to disbelieve the genuineness of these expenses.
Biswanath Das, on behalf of the revenue was unable to controvert the above findings regarding the fact that the vendors had indeed responded to the enquiries made by the AO, either directly or through the assessee.
He argued that the AO was unable to examine these vendors to ascertain the veracity of the transactions and thus contended that the AO had rightly disallowed these expenses for want of proper verification.
The two-member Bench of Aby T. Varkey, (Judicial Member) and Om Prakash Kant, (Accountant Member) referring to the decision in the case of CIT Vs. Nikunj Eximp Enterprises Pvt. Ltd held that, merely because the suppliers had not appeared before the Assessing Officer or the CIT(A), one could not conclude that the purchases were not genuine. The High Court, in that case, noted that the assessee had brought on record sufficient evidences to substantiate the genuineness of the purchases and therefore non-attendance of summons could not be the sole reason to disallow the purchases.the Bench allowed this ground of appeal filed by the assessee.
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