ITAT Deletes Bogus Purchase Additions Where Assets Existed & Sales Not Disputed

The assessee, Omnitel Technologies Pvt. Ltd., engaged in telecom services for Government projects, filed returns for AY 2014-15 and AY 2016-17. The assessments were reopened based on information from the Investigation Wing alleging that certain suppliers were providing accommodation entries.

For AY 2014-15, the Assessing Officer treated purchases of Rs. 1.43 crore from M/s R.D. Technologies as bogus and added the entire amount, invoking Section 115BBE. The assessee contended that the purchases were capital in nature, financed through bank loans, supported by invoices, bank statements, insurance policies, and other documentation.

For AY 2016-17, additions were made on alleged bogus purchases from two parties, despite the assessee submitting work orders, completion certificates, and confirmations showing that goods were used in Government contracts.

The CIT(A) partly upheld additions for AY 2014-15 and fully confirmed additions for AY 2016-17, leading to appeals before the Tribunal.

Issue Before Tribunal: Whether additions on account of alleged bogus purchases can be sustained when the assessee furnishes documentary evidence of purchases, existence of assets, and corresponding sales/work execution is not disputed by the Revenue.

ITAT’s Decision: The Tribunal allowed both appeals and deleted the additions.

For AY 2014-15, it held that the Assessing Officer erred in treating capital asset purchases as bogus. The existence of assets was established through bank financing and insurance coverage, which necessarily involved verification. Since the purchases were capitalised and not claimed as revenue expenditure, the addition lacked factual basis.

For AY 2016-17, the Tribunal noted that the assessee had demonstrated actual consumption of goods in Government projects through work orders and completion certificates. The Revenue neither disputed the sales nor conducted any independent inquiry with suppliers or contractors. Merely relying on Investigation Wing reports without rebutting the assessee’s evidence was held insufficient.

The Tribunal reiterated that when sales are accepted, purchases cannot be treated as entirely bogus. Thus, the additions were unsustainable and therefore rejected.

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