Builder’s Purchases Held Genuine Despite Sales Tax Alert; ITAT Deletes Rs. 1.07 Crore Income Tax Addition

The Income Tax Appellate Tribunal (ITAT) Mumbai held that generalized third-party statements unsupported by direct evidence cannot override contemporaneous documentary records.

The assessee is engaged in property development, painting, renovation and repair contracts and had filed his return declaring an income of Rs 43.19 lakh for assessment year 2010-11. Based on information received from the Maharashtra Sales Tax Department, the assessment was reopened. The AO treated purchases amounting to Rs 1.07 crore as b and added the entire amount to the assessee’s income.

In the first round of appellate proceedings, the CIT(A) held that the contracts executed by the assessee required procurement and consumption of materials and, therefore, complete disallowance of purchases was unsustainable. Subsequently, on an application filed by the assessee, the Tribunal restored the matter to the AO for the limited purpose of furnishing statements relied upon by the Department and granting an opportunity of cross-examination. In the fresh proceedings, the AO once again treated the entire purchases as bogus and restored the addition of Rs 1.07 Crore. The CIT(A), however, deleted the addition after holding that the AO had exceeded the scope of the remand order and that the assessee had furnished sufficient documentary evidence proving receipt and utilization of material.

The Tribunal observed that AO was not competent to revisit those issues in the second round of proceedings, as the earlier findings had attained finality. The Bench further noted that the statements relied upon by the Department were general in nature and did not mention the assessee nor identify any specific invoice or the quantity of goods and work transaction. Such statements cannot constitute conclusive evidence against the assessee.

Since the execution of contracts and corresponding receipts had been accepted by the Department and no evidence was brought on record to establish that the documents were fabricated or that no materials were delivered, ITAT Mumbai established the purchase delivery and consumption of materials and dismissed the Revenue’s appeal and upheld the order of the CIT(A) deleting the addition of Rs 1.07 crore.