2010 (12) TMI 1201 - AT - Income Tax

Tribunal allows Revenue's appeal, orders 12.5% disallowance on purchases, emphasizes proof of genuineness.

Assistant Commissioner of Income Tax, Cir. 5 Baroda. Versus M/s. Kulubi Steel

The Tribunal partly allowed the Revenue's appeal, directing a 12.5% disallowance of purchases from Anant Corporation and Kunal Corporation, modifying the ... Estimation of income - Bogus purchases - Whether purchases are genuine even though backed by defective bills? - assessee failed to produce seller in order to substantiate his claim - onus of burden to prove regarding the genuineness of purchases - HELD THAT:- The assessee did not make any effort to controvert the finding recorded by the DDIT (Investigation) and it made no efforts to produce the seller parties on the other hand it claimed that it is not his responsibility to produce the seller. It is a settled law that onus is on the assessee to establish the genuineness of the purchase. The assessee has produced various evidence with regard to the receipt of the goods by it, i.e. stock register, receipt of weigh-bridge for weighment of goods purchased by the assessee, octroi receipt for the payment of octroi duty etc. After considering the entire material, it is oopined that the assessee did not purchase the goods from the parties mentioned in the sales bill. At the same time, it did purchase the goods from some other suppliers, may be without bill. Therefore, purchase rate as mentioned in the alleged sales bill cannot be accepted. Any person indulging in the practice of purchasing goods from the grey market and obtaining bogus bills of some other parties, would do so for getting some benefit. But what would be the magnitude of the benefit would depend upon facts of each case. In the case of VIJAY PROTEINS LTD. VERSUS ASSISTANT COMMISSIONER [1996 (1) TMI 144 - ITAT AHMEDABAD-C], ITAT held that such benefit to be 25% and therefore sustained the disallowance for bogus purchase at 25%. In the case of INCOME TAX OFFICER. VERSUS SUNSTEEL. [2004 (6) TMI 236 - ITAT AHMEDABAD-B], the ITAT deemed it fit to sustain the disallowance for a lumpsum amount of ₹ 50,000/- - However, in the case of Shri Anubhai Shivlal, the ITAT has considered both the decisions in the case of Vijay Proteins and Sunsteel and thereafter sustained the disallowance at 12.5%. Thus, it would meet ends of justice, if the disallowance is sustained at 12.5% of the purchase from these two parties. The Assessing Officer is directed to work out the disallowance accordingly - the Revenue’s appeal is partly allowed. Issues Involved:1. Deletion of addition on account of bogus purchases.2. Genuineness of suppliers and purchases.3. Onus of proving the genuineness of purchases.4. Appropriate percentage of disallowance for bogus purchases.Issue-wise Detailed Analysis:1. Deletion of addition on account of bogus purchases:The Revenue appealed against the Commissioner of Income Tax (Appeals) [CIT(A)]'s order, which deleted the addition of Rs. 49,71,832/- made by the Assessing Officer (AO) on account of bogus purchases. The AO had found that purchases from Anant Corporation and Kunal Corporation were bogus. The CIT(A) accepted that the bills issued by the sellers were defective but held the purchases to be genuine based on quantitative records and octroi receipts, thus deleting the addition.2. Genuineness of suppliers and purchases:The AO, with the help of the DDIT (Investigation), found that the addresses provided for Anant Corporation and Kunal Corporation were either residential or linked to individuals who admitted to issuing bills without actual transactions. The assessee was confronted with these findings but refused to produce the suppliers, claiming it was not their responsibility. The AO concluded that the purchases were bogus and added Rs. 49,71,832/- to the assessee's income. The CIT(A), however, considered the quantitative records and other evidence like octroi receipts and weigh-bridge receipts to hold that the purchases were genuine.3. Onus of proving the genuineness of purchases:The Tribunal noted that it is the assessee's responsibility to establish the genuineness of the purchases. The assessee provided evidence of receipt of goods, such as stock registers, weigh-bridge receipts, and octroi receipts. However, the Tribunal found that while the goods were received, they were not purchased from the parties mentioned in the bills. The Tribunal concluded that the assessee likely purchased the goods from other suppliers without bills and obtained bogus bills from Anant Corporation and Kunal Corporation.4. Appropriate percentage of disallowance for bogus purchases:The Tribunal referred to previous cases like Vijay Proteins Ltd., where a 25% disallowance for bogus purchases was sustained, and Sunsteel, where a lump sum disallowance of Rs. 50,000/- was made. In the case of Anubhai Shivlal Shah, the ITAT sustained a 12.5% disallowance. Considering these precedents, the Tribunal decided that sustaining a disallowance of 12.5% of the purchases from the two parties would be appropriate. The AO was directed to work out the disallowance accordingly.Conclusion:The Tribunal partly allowed the Revenue's appeal, directing a 12.5% disallowance of the purchases from Anant Corporation and Kunal Corporation, thereby modifying the CIT(A)'s order. The judgment emphasized the importance of the assessee's responsibility to prove the genuineness of purchases and the Tribunal's discretion in determining a reasonable disallowance percentage based on the facts of the case.