ITAT Allows Appeal, Deletes Additions on Bogus Purchases, Suppression of Production and Section 40A(3) Disallowance

The assessment for AY 1992-93 carried multiple additions including Rs. 10,40,88,748 on alleged bogus purchases from M/s Babbar Industrial & Trading Co., Rs. 6,85,296 on duplicate purchase entries, Rs. 2,35,99,954 for suppression of production, Rs. 1,16,29,961 disallowed under Section 40A(3), Rs. 5,31,40,700 under Section 68 as share capital, and Rs. 8,60,910 disallowed as administrative expenses. An amount of Rs. 3,32,62,148 was also treated as income belonging to the assessee despite amalgamation, and Rs. 10,91,997 was added towards job work charges.

According to the assesseee, the purchases were genuine and supported by records, duplication did not exist, suppression was wrongly worked out by applying standard weights, payments disallowed under Section 40A(3) were either covered under Rule 6DD or were journal adjustments, and that post-amalgamation income could not be taxed again in the name of the erstwhile company.

Issue Raised: Whether the additions for bogus purchases, duplication of purchases, suppression of production, disallowance under Section 40A(3), unexplained share capital, ad hoc disallowance of expenses, job-work receipts and amalgamated income were legally sustainable; and whether consequential penalty/interest could survive.

ITAT’s Decision: The Tribunal deleted the bogus purchase addition of Rs. 10.40 crore, holding that sales were not doubted, duplication of Rs. 6.85 lakh was removed on ledger verification, suppression of production addition was reduced in line with appellate directions valuing scrap at Rs. 43.93 lakh, and job work charges were deleted, being revenue neutral. The disallowance of Rs. 1.16 crore under Section 40A(3) was deleted as many payments fell under Rule 6DD or were non-cash adjustments, the share capital addition of Rs. 5.31 crore was held unsustainable, and the ad hoc disallowance of Rs. 8.60 lakh was removed.

The Tribunal accepted the ground that Rs. 3.32 crore pertained to the amalgamated entity and could not be taxed again. All consequential penalty and interest proceedings were also set aside.

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