The Ahmedabad Bench of Income Tax Appellate Tribunal (ITAT) has upheld the partial relief as no additional evidence was taken while dealing with partial relief of disallowance under Section 40A(3) of the Income Tax Act 1961 on bogus purchase without seeking remand report. The A.O. had received the information from the Investigation Wing that it had conducted a search in the case of Tricon Construction on 5.12.2012. Tricon Construction had obtained bogus bills for material and labour.
The Investigation Wing had identified bogus billers and these bogus billers had admitted under oath that they had not rendered any actual service or supply of goods against the payment received. The bogus billers had also admitted that they had withdrawn the cash and returned the same to the payers after deducting their commission. The appellant, Balajay Infrastructure Pvt. Ltd was one of the potential beneficiaries of the following two bogus billers namely (a) Riya Enterprise, Prop. Shri A. A. Patel and (b) Arasuri Enterprises, Prop. Jivanlal H. Patel. Based on the information received from the Investigation Wing, the A.O. in order to find out the genuineness and whereabouts of these bogus billers had issued summons.
However, in the second round also both of them i.e. bogus billers and appellant did not attend. However, on failure of the appellant as well as the four persons mentioned above as bogus billers to attend as well as non-verification of their address the A.O. concluded that the appellant was not able to discharge its onus and genuineness of purchase of goods from the bogus billers was done with a view to regularise the purchase made from the unregistered dealers in the open market. Further, the A.O. had also observed that even though the actual receipt of goods was not in doubt, the fact remains that the actual purchases were made in cash from these unregistered dealers.
Thereby invoking the provisions of Section 40A(3) of Income Tax Act, the AO held that purchases in cash were liable for 100% disallowance. S. N. Divatia, appeared on behalf of the revenue submitted that order passed by CIT(Appeals) was erroneous insofar as he proceeded to give relief to the extent of 75% of the disallowances made by the Assessing Officer, without calling for the remand report. The two-member Bench of Annapurna Gupta, (Accountant Member) and Siddhartha Nautiyal, (Judicial Member) dismissed the appeal observing that,
“We observe that while passing the order, LCIT(Appeals) has not taken any additional evidence on record, which formed the basis of granting part relief to the assessee. CIT(Appeals) while affording part relief to the assessee, passed the order on the presumption that the purchase was in fact bogus, a fact which was already highlighted in the assessment order. While we are of the view that in case the appellate order passed by CIT(Appeals), which takes into account additional evidences filed by the assessee as the basis of affording relief to the assessee, the same is liable to be set aside if remand report is not sought from the concerned Assessing Officer