ITAT allows appeal with 5% addition on purchases to prevent revenue leakage. Ground challenging assessment reopening dismissed.

The Income Tax Appellate Tribunal (ITAT) partly allowed the appeal, directing the Assessing Officer (AO) to make an ad-hoc addition of 5% on the purchases to prevent revenue leakage. The ITAT noted the possibility of purchases from the grey market and accommodation bills. The additional ground challenging the reopening of assessment under section 147 was dismissed as not pressed. The order was pronounced on 22/10/2019 at Ahmedabad.

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Issues Involved:
1. Bogus Purchases
2. Reopening of Assessment under Section 147 of the Income Tax Act

Issue-wise Detailed Analysis:

1. Bogus Purchases:

The primary issue in this case revolves around the purchases made by the assessee amounting to Rs. 55,61,085, which were treated as bogus by the Assessing Officer (AO). The assessee, engaged in trading ferrous and non-ferrous metals, showed purchases from six parties. However, during the assessment, the AO observed discrepancies, including information from the Maharashtra Sales Tax Department indicating that the purchases were bogus. Notices issued under section 133(6) to the parties from whom purchases were made remained unserved or unanswered, and there was a discrepancy in the VAT paid.

The assessee contended that all purchases were supported by invoices, delivery challans, and payments made through account payee cheques. The assessee also argued that sales corresponding to these purchases were recorded, and without genuine purchases, such sales could not have been made. However, the AO disagreed, noting that the purchases were made from non-existent parties and payments were made in the subsequent year.

The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, emphasizing that the onus was on the assessee to prove the genuineness of the purchases by producing the parties involved. The CIT(A) treated the entire amount as bogus purchases.

Upon appeal, the Income Tax Appellate Tribunal (ITAT) noted that the assessee had shown sales against the purchases, which were not disputed by the Revenue. The ITAT acknowledged the possibility of the assessee purchasing goods from the grey market and obtaining accommodation bills to justify such purchases. To prevent revenue leakage, the ITAT directed an ad-hoc addition at the rate of 5% of the purchases, following the precedent set in the case of ITO vs. Sun Steel.

2. Reopening of Assessment under Section 147 of the Income Tax Act:

The assessee raised an additional ground of appeal, challenging the reopening of the assessment under section 147. However, the assessee did not press this ground during the hearing, and it was dismissed as not pressed.

Conclusion:

The ITAT partly allowed the appeal, directing the AO to make an ad-hoc addition of 5% on the purchases to meet the ends of justice and prevent revenue leakage. The additional ground of appeal regarding the reopening of the assessment was dismissed as not pressed. The order was pronounced in court on 22/10/2019 at Ahmedabad.

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