2017 (3) TMI 1372 - AT - Income Tax

Tribunal overturns decision on alleged bogus purchases, citing lack of conclusive evidence

The Tribunal allowed the appeal, overturning the CIT(A)'s decision to add &8377;16,84,112 on account of alleged bogus purchases. The Tribunal found ... Addition of bogus purchases - allegation made by the VAT Department that the suppliers are Hawala operators - Held that:- We note that the assessee has produced the bills and bank statement showing payment against the supplies received. The amount of VAT collected by the suppliers from the assessee was not paid to VAT Department. This has probably provoked the VAT Department to dub the impugned suppliers as Hawala operators. The VAT Department has finally collected the taxes from the purchaser of the goods, i.e. the assessee. Therefore, it is ostensible that the purchases are not found to be bogus per se by VAT Department. In the case of non-existing purchases, as understood by the IT Department based on the reference made by the VAT authorities, there was no occasion for the VAT authorities to collect VAT thereon. The collection of VAT tantamount to existence of transaction of purchases. The grievance of the VAT authorities was on non-payment of VAT on purchases happened. Thus, purchases made cannot be denied on the basis of aforesaid allegation. Neither has the Assessing Officer challenged the book results claimed to be reasonable by the assessee. No result of any other enquiry, if any, is recorded. There is no finding on facts adverse to the assessee except non-descript reference made by the VAT Department which, in our view, is not adequate to implicate the assessee with the charge of bogus purchase. It is pertinent herein to note that that, in the case of assessee-HUF (assessment order in file), the gross profit has been estimated by tax authorities at 11% of the Hawala purchases. In the instant case, the assessee has already declared 13% gross profit. Thus, semblance of reasonableness in book results also cannot be denied. - Decided in favour of assessee Issues:1. Addition of &8377; 16,84,112/- on account of bogus purchases confirmed by CIT(A).2. Whether purchases worth &8377; 16,84,112/- can be treated as bogus based on allegations by the VAT Department.Analysis:1. The appeal was against the CIT(A)'s order confirming the addition of &8377; 16,84,112/- on account of alleged bogus purchases. The Assessing Officer observed purchases from firms flagged as Hawala operators by the VAT Department. The assessee provided bills and bank statements to prove the purchases were genuine, with VAT payments made by the sellers subsequently. The CIT(A) upheld the addition, considering the sellers as Hawala concerns. The Tribunal noted the VAT Department's actions did not conclusively prove the purchases were bogus, especially since VAT was collected from the assessee. The Tribunal found no valid basis to dispute the purchases and allowed the appeal.2. The key issue was whether the purchases could be deemed bogus based on the VAT Department's allegations of the sellers being Hawala operators. The Tribunal emphasized that the VAT Department collecting taxes indicated the purchases were not inherently fake. It highlighted that VAT collection implied the existence of transactions, and the Assessing Officer did not provide independent findings to challenge the purchases' genuineness. The Tribunal noted the reasonable gross profit declared by the assessee and compared it to similar cases where lower profit percentages were estimated. Ultimately, the Tribunal concluded that there was no substantial evidence to discredit the purchases, leading to the appeal being allowed.This detailed analysis showcases the Tribunal's thorough examination of the issues raised, emphasizing the importance of concrete evidence and valid reasoning in tax assessments involving alleged bogus transactions.