Tribunal validates assessment reopening, reduces bogus purchase addition for marine products supplier

The Tribunal upheld the validity of the assessment reopening based on information from the sales tax department regarding suspicious purchases. However, the Tribunal reduced the addition on account of alleged bogus purchases from 6% to 3% for the partnership firm engaged in supplying marine products to PSUs. The decision was influenced by factors such as profit rates, lack of comparative data, and the nature of the business. The AO was directed to limit the addition to 3% of the disputed purchases for the relevant years.

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Issues:
Validity of reopening assessment and merit of addition on account of bogus purchase.

Validity of Reopening Assessment:
The appeals were filed against the order of CIT(A) for assessment years 2007-2008 to 2011-2012 under section 143(3) r.w.s.147 of the I.T. Act. The assessment was reopened based on information received regarding bogus/suspicious purchases from vendors listed as hawala dealers by the sales tax department. The AO made an addition on the ground that the assessee would have made an additional margin of 10% on the alleged bogus purchases. The CIT(A) upheld the validity of reopening and added 6% of the alleged bogus purchases. The Tribunal found no infirmity in the AO's action for reopening, considering the information provided by the sales tax department and the reasons recorded for reopening.

Merit of Addition on Account of Bogus Purchase:
The assessee, a partnership firm, primarily engaged in supplying marine products to PSUs, had a low net margin before partner's remuneration and taxes. The AO did not question the sales made by the assessee, most of which were to government entities, and did not doubt the sales or reject the books of accounts. However, the Tribunal noted that no comparative chart was presented to verify if the margin of profit from goods purchased from hawala dealers was similar to that from regular dealers. Considering the overall facts and circumstances, the Tribunal modified the lower authorities' orders and restricted the addition to 3% of the alleged bogus purchases instead of the 10% upheld by the AO and 6% by the CIT(A). This decision was based on the GP rate, net profit rate in previous years, profit rate of other similar traders, and the advantage gained by the assessee through purchases from hawala dealers.

Conclusion:
The Tribunal allowed the appeals in part, directing the AO to limit the addition to 3% of the disputed purchases for all the years under consideration. The decision was based on the lack of substantial evidence to support the higher percentage of addition upheld by the lower authorities. The order was pronounced on 24/08/2016.

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