2018 (12) TMI 1659 - AT - Income Tax

Tribunal Limits Bogus Purchase Addition & Upholds Deletion of Cash Credit

Shri Ashok Nagraj Mehta Versus The Asst. Commissioner of Income tax, Circle 19 (1), Mumbai And Vice-Versa

The Tribunal directed the Assessing Officer to restrict the addition for alleged bogus purchases to 5% of the value, reducing the estimated profit element ... Addition u/s 68 - unexplained cash credit - HELD THAT:- CIT(A) has examined the documents furnished by the assessee and has come to the conclusion that the assessee has discharged the initial burden of proof placed upon his shoulders u/s 68 i.e., he has proved the identity of the creditor, creditworthiness of creditor and genuineness of transactions. Once the assessee discharges the initial burden placed upon him, then the onus shifts to the shoulder of the AO to prove otherwise. In the instant case, we notice that the AO has failed to prove that the documents furnished by the assessee are wrong. The above view is supported by the decision rendered by the co-ordinate bench in the case of Reliance Corporation [2017 (5) TMI 1261 - ITAT MUMBAI] . Hence we do not find any infirmity in the order passed by CIT(A) on this issue and accordingly uphold the same. - Decided against revenue. Issues Involved:1. Addition relating to bogus purchases.2. Addition of cash credits made under Section 68 of the Income Tax Act.Issue 1: Addition Relating to Bogus PurchasesFacts and Contentions:- The assessee, engaged in trading ferrous and non-ferrous metals, was scrutinized for bogus purchases during the assessment years 2011-12 and 2012-13.- The AO issued notices to suppliers, which were returned unserved, and identified some suppliers as hawala parties.- The assessee provided ledger accounts, purchase bills, bank statements, and stock records to substantiate the genuineness of purchases, arguing that sales could not occur without purchases.- The AO rejected the assessee's evidence, assessing the peak amount of purchases as income, invoking Section 69C, and citing Supreme Court cases (Kachwala Gems vs. JCIT and Attar Singh Gurmukh Singh).CIT(A) Decision:- The CIT(A) partially agreed with the AO but held that only the profit element embedded in the bogus purchases should be taxed, estimating this at 12.5% based on Gujarat High Court precedents (Bholanath Poly Fab Pvt. Ltd. and Simit Sheth).Tribunal Analysis and Conclusion:- The Tribunal noted that the assessee reconciled the quantity of purchases with sales, and the AO accepted the sales.- It was acknowledged that the suppliers were hawala dealers, and the assessee failed to prove actual purchases from them.- The Tribunal held that the profit element embedded in such purchases should be taxed, but found the CIT(A)'s 12.5% estimate too high, reducing it to 5%, considering VAT savings and potential discounts.- For both assessment years, the Tribunal directed the AO to restrict the addition to 5% of the value of alleged bogus purchases.Issue 2: Addition of Cash Credits Made Under Section 68Facts and Contentions:- For AY 2012-13, the AO noted that the assessee took loans from two companies belonging to the Bhanwarlal Jain Group, which was under scrutiny for providing accommodation entries.- Despite the assessee providing identity and creditworthiness evidence, the AO assessed the loans as income under Section 68, based on statements from the Bhanwarlal Jain Group.CIT(A) Decision:- The CIT(A) deleted the addition, finding the AO's reliance on the search findings against the Bhanwarlal Jain Group insufficient.- The CIT(A) noted that the assessee provided comprehensive evidence, including ledger accounts, bank statements, income tax acknowledgments, balance sheets, and affidavits from the lenders.Tribunal Analysis and Conclusion:- The Tribunal upheld the CIT(A)'s decision, agreeing that the assessee discharged the initial burden under Section 68 by proving the identity, creditworthiness, and genuineness of the transactions.- The Tribunal found no fault in the documents provided by the assessee and noted that the AO did not effectively counter the evidence.- The Tribunal referenced the Reliance Corporation case, supporting the CIT(A)'s conclusion.Final Order- The Tribunal dismissed the revenue's appeals and partly allowed the assessee's appeals, modifying the addition for bogus purchases to 5% of the value and upholding the deletion of the cash credit addition under Section 68.