The Kolkata Bench of the Income Tax Appellate Tribunal ( ITAT ) ruled that purchases treated as bogus in one financial year cannot automatically be presumed bogus in another year without sufficient evidence specific to that period.
The assessee, A.P. Fashion Pvt. Ltd., filed a return of income for the Assessment Year 2017-18 declaring an income of Rs. 74,54,260. After scrutiny assessment, the total income raised to Rs.81,90,620.
A search operation on Shri Kamal Kumar Jain, identified as an entry operator revealed accommodation entries through bogus billing and shell companies. The assessee was identified as one of the beneficiaries of bogus transactions managed by Jain.
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A survey under Section 133A of the Act was conducted on 30.10.2019 at the premises of A.P. Fashion Pvt. Ltd. The director, Shri Ashok Kumar Jhunjhunwala, admitted during the survey to receiving accommodation entries and bogus billing from entities managed by Jain.
The director acknowledged bogus purchases totaling Rs. 13,30,41,731 from various entities. The assessment was reopened based on these findings, and further scrutiny revealed additional bogus purchases linked to other shell companies.
The Identified shell entities issuing bogus purchase bills included Mission Dealmark Pvt. Ltd. and Human Dealmark Pvt. Ltd. (Dinesh Dhandhania) for FY 2014-15 and Gangadhar Distributors Pvt. Ltd. (Pankaj Agarwal) for FY 2016-17 & 2017-18. Rs. 53,48,160 worth of purchases from Gangadhar Distributors Pvt. Ltd. for FY 2016-17 were deemed bogus and added to the assessee’s taxable income.
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The PCIT, using revisionary jurisdiction under Section 263, observed that Rs. 84,41,255 in purchases from Afterlink Vinimay Pvt. Ltd. for FY 2017-18 were also likely bogus. The PCIT set aside the original assessment order and directed further verification and a fresh assessment.
The assessee appealed against the PCIT’s revision order before the ITAT arguing Purchases from AVPL were for trading items fancy sarees and were subsequently sold yielding taxable profits and that the AO scrutinized purchase records during assessment and found no irregularities for FY 2017-18.
The two-member bench comprising Sanjay Garg (Judicial Member) and Sanjay Awasthi (Accountant Member) observed that the physical stock and purchase records were verified during the assessment and after scrutiny the AO did not find discrepancies in the transactions with AVPL for FY 2017-18.
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The tribunal further observed the purchases were of finished products (fancy sarees) directly linked to subsequent sales ruling out any intent to inflate expenses via bogus entries. The tribunal held that merely treating a party as a shell company for other years cannot automatically discredit its transactions for the year under consideration. So, the tribunal quashed the revision order passed by the PCIT under Section 263. The appeal was allowed.
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