Facts of the Case

  • The assessee, engaged in trading of chemical products, filed return for AY 2013-14.
  • Case was selected for scrutiny, focusing on sundry creditors and purchases.
  • AO issued notices to four suppliers; three parties could not be verified.
  • AO treated purchases from those parties as bogus, adding ₹48,01,597 to income.
  • Appeal before CIT(A) was dismissed.
  • ITAT remanded the matter to AO for fresh adjudication with directions:
    • Reconcile purchases with sales and stock
    • Produce purchase parties with confirmation
  • Assessee challenged the mandatory requirement (“shall”) to produce parties.

Issues Involved

  1. Whether ITAT was justified in directing the assessee to mandatorily produce purchase parties.
  2. Whether inability to produce parties after long lapse of time can lead to adverse inference.
  3. Scope of burden of proof in establishing genuineness of purchases.

Petitioner’s Arguments (Assessee)

  • Purchases pertain to FY 2012–13, making it difficult to trace parties after many years.
  • VAT returns and records already establish genuineness of transactions.
  • Quantitative sales data supports corresponding purchases.
  • ITAT’s use of “shall” is onerous and unjust, risking adverse inference.
  • Requested modification of direction from “shall” to “may”.

Respondent’s Arguments (Revenue)

  • Purchases from unverified parties raise serious doubts on genuineness.
  • Assessee must discharge burden by producing credible evidence and parties if required.
  • AO must be allowed to conduct proper verification.

Court’s Findings / Order

  • High Court acknowledged practical difficulty in producing parties after long time.
  • Modified ITAT direction:
    • “Shall” replaced with “may” regarding production of purchase parties.
  • Held:
    • Assessee is not absolved of burden of proof.
    • AO must consider all documentary evidence, including those filed before ITAT.
    • No adverse presumption should arise merely due to inability to produce parties.
  • Matter remanded for fresh adjudication by AO.
  • Appeal partially allowed.

Important Clarification by Court

  • ITAT had not rejected assessee’s documents, only remanded for verification.
  • AO is duty-bound to:
    • Consider all evidence on record
    • Provide fair opportunity of hearing
  • Genuineness of purchases must be determined independently on merits, not presumptions.

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:3681-DB/58907092022ITA1792022_133116.pdf

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