One-to-One Correlation Between Corresponding Purchases and Sales Bars Bogus Purchase Addition: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Patna Bench, deleted additions made towards alleged bogus purchases and bogus sales after finding that the assessee had established one-to-one correlation between corresponding purchases and sales and the Revenue had failed to establish that transaction amounts had been routed back to the assessee.

The assessee, Shakti Agencies Private Limited, had filed return of income for Assessment Year (AY) 2018-19 declaring income of Rs.4.14 lakh. Based on information received from the Insight Portal regarding alleged bogus purchases and bogus sales, reassessment proceedings under Section147 of the Income Tax Act were initiated.

During reassessment proceedings, the AO treated purchases of Rs.31.24 lakh as bogus under Section 37 of the Act after observing that the supplier was non-genuine and had failed to respond to notices issued under Section 133(6) of the Income Tax Act,1961.

The AO further treated sales of Rs.5.01 crore as unexplained cash credits under Section 68 of the Act on the basis of statements recorded during survey proceedings and absence of documentary evidence regarding delivery of goods.

The CIT(A) upheld both additions made by the AO.

Aggrieved, the assessee preferred an appeal before the Tribunal.

Before the Tribunal, the assessee contended that the impugned purchases were directly linked with corresponding sales and that the Revenue had accepted such sales without disputing quantitative details maintained in the books of account. The assessee further submitted that all transactions were supported by purchase invoices, transport receipts, banking transactions, stock records and GST returns.

However, the Revenue contended that the assessee had failed to produce delivery challans and transportation bills and therefore genuineness of purchases and sales remained unproved.

The Tribunal comprising Laxmi Prasad Sahu (Accountant Member) and Sonjoy Sarma (Judicial Member) observed that the assessee had established one-to-one correlation between corresponding purchases and sales through documentary evidence and quantitative details.

The Tribunal further observed that once corresponding sales had been accepted, the related purchases could not be treated as bogus, particularly when the Revenue failed to establish that payments made in the transactions had returned to the assessee.

The Tribunal also observed that addition made towards alleged bogus sales under Section 68 of the Act resulted in double addition since profit arising from such sales had already been offered to tax.

Accordingly, the Tribunal deleted additions made towards alleged bogus purchases and bogus sales.

The assessee’s appeal was partly allowed.

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