Purchase by assessee couldn’t be treated as bogus if AO didn’t dispute corresponding sales transactions: HC

Case Details: Principal Commissioner of Income-tax v. Nitin Ramdeoji Lohia - [2022] 145 taxmann.com 546 (Bombay)

Judiciary and Counsel Details

• • Dhiraj Singh Thakur & Abhay Ahuja, JJ.
  • Suresh Kumar, Adv. for the Appellant.
  • Mihir C. Naniwadekar & Ruturaj H. Gurjar, Advs. for the Respondent.

Facts of the Case

Assessee, an individual, was engaged in the business of trading in industrial oil and transport services. During the relevant assessment year, the Assessing Officer (AO) received certain information from the sales tax department regarding the beneficiaries of bogus purchases.

Upon receipt of information, assessee being one of the beneficiaries of the bogus purchases, AO initiated assessment proceedings and computed the income accordingly.

Assessee contended that the AO could not challenge the purchases as bogus since the amount of corresponding sales was not challenged by him in the proceedings.

The matter reached the Bombay High Court.

High Court Held

The Court held that the AO had not finished the investigation in the case and had not looked into the affidavits and confirmation letters submitted by the assessee from the dealers from whom it made purchases. The assessee demonstrated the fact of making purchases from these parties, and the AO presented no evidence to contradict this.

Further, the fact that AO did not challenge the sales indicates that these were not bogus purchases. If the purchases were fake, it would not have been possible for the assessee to complete the sale transaction. In the instant case, where corresponding sales are not disputed, the purchases cannot be held as bogus unless the purchases are made from bogus entities.

Therefore, the Court held that the transaction could not be considered as a sham transaction and deleted the addition made by the AO.

List of Cases Reviewed

• • Order of ITAT, Pune in Income-tax Appeal Nos. 1408 and 1409 (PUN) of 2015, dated 5-7-2017 (para 7) partly affirmed.