2015 (2) TMI 206 - HC - Income Tax

Bogus purchase invoices and unverifiable suppliers: Tribunal's 6% net profit estimate rejected for ignoring voucher-bill discrepancies

The dominant issue was whether the Tribunal could replace specific additions for alleged bogus purchases and related expenditure with an estimated net ... Bogus purchases - CIT(A) deleted the addition u/s 69C, u/s 40(a)(ia) and machinery repair & maintenance - Tribunal directed the assessing officer to assess income at a net profit rate of 6% and thereafter deleted all additions - Held that:- The impugned order suffers from a fundamental flaw. The Tribunal ignored the evidence relied by the assessing officer particularly the reference to variation in the name of the party on the voucher and the corresponding bill, variation in description of purchases on the voucher and the corresponding bill, variation in rates of the same item of purchase etc. The assessing officer also referred to failure of the assessee to prove the existence of these parties and while doing so did not merely rely upon absence of a sales tax registration number/ or absence of registration with the Pollution Control Board (as held by the Tribunal) but also sought a report from an inspector who found that these parties did not exist at the addresses mentioned in the bills. The Tribunal having ignored relevant facts, in our considered opinion, has committed an error of jurisdiction.Tribunal has erred in applying a net profit rate without considering the material collected by the assessing officer and by ignoring relevant facts and factors referred to by the assessing officer, thereby leading to miscarriage of justice and an error of jurisdiction that must necessarily be rectified by the Tribunal itself. - Decided in favour of revenue. Issues:1. Impugning correctness of order by Revenue2. Addition of various amounts by Assessing Officer3. Deletion of additions by CIT(A) and Tribunal4. Jurisdiction of Tribunal in directing assessment at 6%Analysis:Issue 1: Impugning correctness of order by RevenueThe Revenue challenged the Tribunal's order questioning the correctness of not deciding on the issue of bogus purchases and directing the assessing officer to work out the income at a net profit rate of 6%. The Tribunal was criticized for deleting additions without considering substantial evidence provided by the assessing officer, leading to the appeal by the Revenue.Issue 2: Addition of various amounts by Assessing OfficerThe assessing officer had made several additions to the income of the assessee, including amounts related to failure to deduct tax, payments made in cash, unsubstantiated expenses, and disallowance of repair and maintenance costs. These additions were based on findings that purchases were bogus and lacked proper documentation, leading to discrepancies in the accounts.Issue 3: Deletion of additions by CIT(A) and TribunalThe CIT(A) had deleted one of the additions but affirmed others, resulting in the assessee filing an appeal before the Tribunal. The Tribunal allowed the appeal, directing the assessing officer to assess income at a net profit rate of 6% and deleting all other additions, which was contested by the Revenue for lack of proper reasoning and evidence.Issue 4: Jurisdiction of Tribunal in directing assessment at 6%The Tribunal's decision to assess income at a net profit rate of 6% and delete all additions without thorough consideration of the evidence provided by the assessing officer was deemed flawed. The Tribunal was criticized for ignoring crucial evidence, such as the inspector's report confirming non-existence of parties mentioned in bills, and for not addressing the failure of the assessee to prove the genuineness of purchases, leading to a miscarriage of justice and error of jurisdiction.In conclusion, the High Court allowed the appeal, set aside the Tribunal's order, and directed the Tribunal to reexamine the case considering the evidence and factors presented by the assessing officer. The parties were instructed to appear before the Income Tax Appellate Tribunal for further proceedings.