2017 (5) TMI 203 - AT - Income Tax

Challenges to Tax Additions and Disallowance: Tribunal Decision on Purchases and Service Tax

The Appeals involved challenges to the addition of alleged bogus purchases and the disallowance of Service Tax Liability under Section 43B for Assessment ... Bogus purchases - invoices were incomplete with respect to details of transportation etc. - Held that:- Prima facie, it appears that the addition has been made solely on the basis of information received from the Sales Tax department and statement made u/s 133A by the MD of assessee company during survey operations. Therefore, we find lapses on both the sides. The Tribunal, invariably, in all such cases, have taken a stand that even if presuming that all purchases were bogus, entire addition thereof was not warranted for particularly when the sales were not in dispute and the accounts of the assessee were audited and the assessee provided quantitative details to a reasonable extent and the addition, if any, which has to be made in all such cases is to account for profit element embedded in such purchase transactions. Therefore, after due discussion with both the representative, we estimate the addition @12.5% of bogus purchases of ₹ 6,72,98,528/- which comes to ₹ 84,12,316/-. Hence, addition to that extent is confirmed. - Decided partly in favour of assessee Addition on account of Service Tax Liability u/s 43B - Held that:- Respectfully following the jurisdictional High Court in CIT Vs. Ovira Logistics Private Limited [2015 (4) TMI 684 - BOMBAY HIGH COURT ] Rigor of Section 43B do not apply in case the liability to pay service tax did not arise as per the relevant Service Tax Rules notwithstanding the fact that the same was shown as outstanding in the books of accounts and remained unpaid. Therefore, in principle, we agree with the contentions of the Ld. AR and therefore, deem it fit to restore the matter back to the file of Ld. AO for limited purpose of verification of the fact that the service tax liability shown as outstanding at year end and remaining unpaid was actually not payable as per service tax rules. If so, the impugned additions shall stand deleted. Issues Involved:1. Addition of alleged bogus purchases.2. Disallowance of Service Tax Liability under Section 43B.Issue-wise Detailed Analysis:1. Addition of Alleged Bogus Purchases:The appeals pertain to the Assessment Years (AY) 2009-10 and 2010-11, challenging the common order of the Commissioner of Income Tax (Appeals)-22 [CIT(A)], Mumbai. The primary issue is the confirmation of an addition to the extent of 20% on alleged bogus purchases. The assessee, a resident corporate entity engaged in civil and labor contracting, was assessed under Section 143(3) read with Section 147 of the Income Tax Act, 1961. The total income was determined at Rs. 10,09,83,380/- after adding Rs. 6,72,98,528/- as bogus purchases. The reassessment was triggered by a survey action revealing that the assessee procured bogus purchase bills without actual delivery of material from listed hawala dealers. Despite the assessee's denial and partial evidence of delivery, the Assessing Officer (AO) made the additions due to the lack of concrete proof of actual delivery.The CIT(A) partially upheld the AO's decision, restricting the disallowance to 20% of the alleged bogus purchases, amounting to Rs. 1,34,59,705/-. The ITAT, upon reviewing the documents and arguments, found lapses on both sides. It concluded that the entire addition was not warranted since the sales were not disputed, and the accounts were audited. The Tribunal, following judicial precedents, estimated the addition at 12.5% of the bogus purchases, confirming an addition of Rs. 84,12,316/-. Consequently, the assessee's appeal was partly allowed, and the revenue's appeal was dismissed.For AY 2010-11, a similar issue arose with an alleged bogus purchase addition of Rs. 2,01,71,071/-. The CIT(A) had restricted this addition to 20%. Following the same rationale as for AY 2009-10, the ITAT restricted the addition to 12.5%, amounting to Rs. 25,21,384/-. Thus, the revenue's appeal was dismissed, and the assessee's appeal was partly allowed.2. Disallowance of Service Tax Liability under Section 43B:The assessee contested an addition of Rs. 51,74,066/- on account of outstanding Service Tax Liability under Section 43B. The AO noted that this liability, reflected in the Balance Sheet, remained unpaid, thus attracting disallowance under Section 43B. The assessee argued that the liability to pay service tax arose only upon receipt of payment from clients and was not claimed as a deduction in the Profit & Loss account.The CIT(A) directed the AO to verify the service tax collected and disallow only the portion collected but not paid. The ITAT, considering the arguments and judicial precedents, agreed that Section 43B did not apply if the liability to pay service tax had not arisen as per the service tax rules. The Tribunal restored the matter to the AO for verification that the outstanding service tax was not payable under the service tax rules. If verified, the addition would be deleted. The assessee was directed to provide necessary documents for verification.Conclusion:Both the revenue's appeals were dismissed, and the assessee's appeals were partly allowed. The order was pronounced on 02nd May 2017.