ITAT Decision: Partial win for assessee on bogus purchases, disallowance of X-ray film purchases upheld, addition under Section 68 confirmed.

The ITAT partly allowed the assessee's appeal by applying a 15% Net Profit rate to the alleged bogus purchases, allowing the disallowance of X-ray film purchases, and upholding the addition under Section 68 for unexplained trade creditors. The order was pronounced on 12/02/2016.

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Issues Involved:
1. Addition towards alleged bogus purchases.
2. Disallowance in respect of purchase of X-ray films.
3. Addition under Section 68 on account of various trade creditors.

Detailed Analysis:

1. Addition towards alleged bogus purchases:

The assessee, running a hospital, filed a return for A.Y. 2009-10, declaring an income of Rs. 16,56,920 and agricultural income of Rs. 42,500. The case was scrutinized under Section 143(3) of the Income Tax Act, 1961. The Assessing Officer (AO) noted discrepancies in the purchase records, including the absence of a stock register. Summons issued to suppliers Devi Distributors & Surgicare and Karni Enterprises were returned undelivered, leading to the disallowance of Rs. 4,22,209 in purchases. The AO also disallowed 20% of purchases from Bhargava Hi Tech Surgimed Co. Pvt. Ltd., totaling Rs. 4,62,588.

The CIT(A) upheld the disallowance of Rs. 4,22,209 due to the non-existence of the suppliers at the given addresses and the failure of the assessee to produce responsible persons for verification. However, the CIT(A) deleted the 20% disallowance on purchases from Bhargava Hi Tech Surgimed Co. Pvt. Ltd., finding no basis for the disallowance.

On appeal, the ITAT noted that the assessee provided evidence such as purchase bills containing VAT and other details. The ITAT decided that a 15% Net Profit should be applied to the bogus purchases, partly allowing the assessee's appeal.

2. Disallowance in respect of purchase of X-ray films:

The AO disallowed Rs. 24,919 for X-ray films due to the absence of purchase vouchers. The CIT(A) confirmed this disallowance, noting the failure of the assessee to prove the genuineness of the expenses.

The ITAT considered the small amount and the fact that the assessee disclosed income from the X-ray machine and claimed depreciation on it. Despite the absence of purchase bills, the ITAT allowed the assessee's appeal on this ground, considering the natural necessity of purchasing X-ray films for the functioning of the X-ray machine.

3. Addition under Section 68 on account of various trade creditors:

The AO added Rs. 3,98,355 under Section 68 for unexplained cash credits from various parties. The CIT(A) found some creditors explained, resulting in a reduced addition of Rs. 59,700 for M.K. Surgical Suppliers, Rajputana Biotech Pvt. Ltd., Santosh Battery Services, Shree Laxmi Medicose, and Surgimed. The CIT(A) confirmed these additions due to the lack of proper explanation and documentary evidence.

The ITAT noted that the assessee did not provide sufficient evidence to counter the findings of the lower authorities. The ITAT dismissed the appeal on this ground, upholding the addition of Rs. 59,700 under Section 68.

Conclusion:

The ITAT partly allowed the assessee's appeal, applying a 15% Net Profit rate to the bogus purchases, allowing the disallowance of X-ray film purchases, and upholding the addition under Section 68 for unexplained trade creditors. The order was pronounced in the open court on 12/02/2016.

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