Purchases Claimed by Assessee not Proven to be Non-Business Related: Delhi HC Upholds ITAT's Findings [Read Order]

In a recent ruling, the Delhi High Court upheld the findings of the Income Tax Appellate Tribunal ( ITAT ) and held that the purchases claimed by the assessee were solely and exclusively for business purposes, as there was no evidence to show that the purchases claimed by the assessee were non-business related.

The revenue has appealed against the ITAT order. The ITAT ruled in favour of the assessee, allowing Rs. 7,86,21,320 in purchases previously disallowed as bogus expenditures, based on the evidence and documents provided by the assessee.

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The assessee company, which is a part of the Paramount Group, is engaged in the construction of residential and commercial projects in the State of Uttar Pradesh.

During the assessment proceedings, it was noted by the assessing officer ( AO ) that the purchases booked in the books of accounts regarding the purchases of material from four entities ( M/s Mohan Ram Trading Co,  M/s Shyamji Traders,  Ganga Trading Co. and UTek Sales Corporation )were not genuine.

Although several documents were produced by the assessee, he AO did not accept the material and evidence produced by the assessee and accordingly, disallowed the expenditure to the extent of Rs. 7,86,21,320.

The assessee appealed before the Commissioner of Income Tax ( Appeals ) [ CIT( A ) ]. The CIT( A ) on the basis of the valuation of the project, concluded that the expenditure as claimed was incurred by the assessee but disallowed 20% as it assumed that part of the expenditure must have been incurred in cash.

The CIT( A ) passed the order by reducing the addition made by the AO from Rs. 7,86,21,320  to Rs. 1,96,55,330.

It was observed by the ITAT that the evidence and material produced by the assessee establish that it had incurred the expenditure as claimed.

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The Delhi High Court, comprising Justice Vibhu Bakhru and Justice Swarna Kanta Sharma observed that the purchases booked in the books of accounts were exclusively for business as claimed by the assessee.

The bench further observed that ‘As noted by the learned ITAT, there is no evidence to suggest that the amounts paid by the assessee for the supplies booked in its books of accounts had been returned to the assessee in a form of cash or through any accommodation entry. ‘

The High Court dismissed the appeal filed by the revenue and upheld the decision of ITAT.

To Read the full text of the Order CLICK HERE

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