The Delhi bench of the Income Tax Appellate Tribunal (ITAT) observed that Sale Without Purchase is Invalid, as it was evident that the accounting is complete only by taking into account both sides of the transactions. The ITAT deleted the addition under the Income Tax Act, of 1961 on Bogus Purchase.
Bhartiya International Ltd, the assessee challenged the final assessment order dated 29.07.2022 passed under Section 143(3) r.w. Section 144B r.w. Section 144C(13) passed in pursuance of directions issued by the Dispute Resolution Panel (DRP) dated 02.06.2022 read with rectification order dated 28.06.2022 passed by DRP under Rule 13 of the Dispute Resolution Panel Rules, 2009.
In the draft assessment order, the AO proposed disallowance on account of bogus purchases of denim fabric from SunGold Trade Pvt. Ltd.(STPL) amounting to Rs. 15,17,87,755/- which was, in turn, sold to two parties namely Shivoham Trading Pvt. Ltd. and Shakumbri Tradelink Pvt. Ltd. The AO held the purchases made from STPL as bogus purchases and proposed additions under Section 69C of the Act in the draft assessment order.
The assessee submitted before the DRP that the assessee is also engaged in the business of trading fabric. The impugned purchase from STPL represents trading activity by the assessee where the goods purchased have been sold to two parties without any modification. Such trading transactions have resulted in a profit of Rs.10,36,945/- to the assessee company. It was contended that the sale of goods to these two parties could not be carried out without a corresponding purchase which is assailed as bogus purchase by the AO.
The DRP expressed a view that there cannot be any sale without purchases in any business transaction as the accounting is complete only by taking into account both sides of the transactions. The sale and purchase transactions are thus required to be simultaneously considered. The AO was accordingly directed to make verifications in light of such observations.
The AO in the final assessment order however continued to treat the purchases of fabric from STPL as bogus and refused the claim made under Section 37 of the Act without bringing any fresh facts on record.
A two-member bench comprising Shri Saktijit Dey, Vice President & Shri Pradip Kumar Kedia, Accountant Member observed that the additions made by the AO are not only erroneous but are also contrary to directions of DRP.The exclusion of purchases from the trading results is not permissible without the corresponding exclusion of the sales in such trading activity for arriving at a fair and balanced view.
The ITAT directed the AO to reverse the additions made and restore the position taken by the assessee.
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