Facts of the Case

The Revenue filed an appeal under Section 260A of the Income Tax Act, 1961, challenging the order dated 13.08.2018 passed by the Income Tax Appellate Tribunal in cross appeals arising out of Assessment Year 2010-11. The controversy pertained to disallowance of purchases amounting to ₹7,86,21,320/- which were alleged to be bogus by the Assessing Officer following search and seizure proceedings conducted under Section 132 of the Act.

 Issues Involved

  1. Whether the ITAT erred in deleting the addition of ₹7,86,21,320/- on account of alleged bogus purchases.
  2. Whether the disallowance of purchases was justified when the suppliers were not traceable and cash withdrawals were made from their bank accounts.
  3. Whether the provisions of Section 69C of the Income Tax Act were applicable in the facts of the case.
  4. Whether the findings of the ITAT were perverse or gave rise to any substantial question of law under Section 260A.

 Petitioner’s (Revenue’s) Arguments

  • The assessee failed to prove the identity and genuineness of suppliers from whom purchases were claimed.
  • Field enquiries revealed that the suppliers were non-existent and summons issued under Section 131 remained unserved.
  • Amounts paid to the suppliers were immediately withdrawn in cash, indicating accommodation entries.
  • The ITAT erred in deleting the addition without considering Section 69C of the Act and acted contrary to settled legal principles.

 Respondent’s (Assessee’s) Arguments

  • The assessee had produced books of accounts, stock registers, inward registers, and goods receipt notes evidencing receipt of material.
  • Payments were made through banking channels and duly reflected in the bank statements.
  • The construction material purchased was actually used in the business, and there was no evidence of any cash being returned to the assessee.
  • The business operated in an unorganised sector where suppliers were small vendors operating in grey markets.

 Court Order / Findings

  • The Court noted that no addition was made by the Assessing Officer under Section 69C of the Act, and therefore the Revenue’s reliance on that provision was misplaced.
  • The dispute was purely factual in nature, revolving around the genuineness of purchases.
  • The ITAT had correctly appreciated evidence including banking transactions, stock registers, and absence of proof of cash accommodation entries.
  • There was no material to show that payments made by the assessee were returned in cash or through any other mode.
  • The findings of the ITAT could not be termed perverse.

 Important Clarification

The High Court clarified that when additions are deleted by the ITAT on the basis of factual appreciation of evidence, and no perversity is shown, no substantial question of law arises for consideration under Section 260A of the Income Tax Act.

 Final Outcome

The appeal filed by the Revenue was dismissed. The Delhi High Court upheld the order of the ITAT allowing the purchases and confirmed that no substantial question of law arose in the matter.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1770114093_PR.COMMISSIONEROFINCOMETAX7VsMLSPARAMOUNTRESIDENCYLTD..pdf 

 

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