2017 (6) TMI 514 - AT - Income Tax

Tribunal emphasizes burden of proof in income tax cases involving alleged bogus purchases

M/s. Chhabi Electricals Pvt. Ltd., Apex Ecotech Pvt. Ltd., M/s. Modern Enterprises, C/o. Shah Khandelwal Jain & Associates, Versus The Deputy Commissioner of Income Tax, Circle-1, Jalgaon and The Asst. Commissioner of Income Tax, Dist. Kolhapur Versus M/s. Anant Chemicals

The Tribunal upheld additions to the income of assessees in cases involving alleged bogus purchases where corroborative evidence was lacking. It ... Disallowance of purchases u/s 69C - Held that:- The assessee was one such person to whom the sales were made by the parties who were enlisted by the Sales Tax Department as hawala dealers - AO during assessment asked assessee to produce the said parties for verification alongwith supporting bills along with related details i.e. delivery challans for the goods, receipts from octroi paid - assessee expressed his inability to produce the parties and the bills - since the parties were blacklisted by the Sales Tax Department thus the purchases from them would be treated as bogus and not genuine - merely because the assessee is able to produce the purchase bills evidencing the VAT charged to the assessee, does not establish the factum of purchases being made by the assessee - the assessee has not maintained any stock details Before the CIT(A), the assessee submitted that if most of the purchases are unverifiable GP rate could be applied to make the addition - assessee claims that the purchases were made in the regular course of carrying on the business from parties who were registered with the Sales Tax Department and had VAT number - also VAT collected by the said dealers has not been deposited with the Sales Tax Department, assessee voluntarily revised his return under MVAT Act by withdrawing the set off of claim in the earlier return and paid the taxes with interest - hence CIT(A) is confirmed in estimating the addition @10% of alleged hawala purchases In the case of M/s. Chhabi Electricals Pvt. Ltd - the AO before making the addition has not even supplied the copy of statement to establish that the purchases made by the assessee were bogus thus no additioncan be made in the hands of assessee - assessee has established the trail of goods purchased to the final consumption hence no additions by Ao - Decided in favor of assessee In the case of Maa Saraswati Steel Industries - The assessee was also maintaining inward records of goods purchased and their consumption in items, which are excisable in nature - hence no additions by Ao - Decided in favor of assessee In case of Mahendra Shantilal Chaturmutha - no copy of statement was supplied to establish that the purchases made by the assessee were bogus thus no additioncan be made in the hands of assessee - Decided in favor of assessee In the case of M/s. Anant Chemicals - copy of statement was supplied - The CIT(A) applied higher GP rate to estimate the income in the hands of assessee on account of bogus purchases - Decided against the revenue. Issues Involved:1. Bogus Purchases2. Non-provision of opportunity for cross-examination3. Reassessment proceedings4. Estimation of Gross Profit (GP) rate on alleged bogus purchases5. Maintenance of stock details and corroborative evidenceDetailed Analysis:Bogus Purchases:The primary issue revolves around the genuineness of purchases made by various assessees from parties listed as 'hawala dealers' by the Sales Tax Department. The Assessing Officer (AO) received information that these dealers had not deposited VAT collected from sales, suggesting the transactions were bogus. The AO disallowed the purchases, treating them as bogus, and made additions to the income of the assessees. The Tribunal in several cases upheld these additions where the assessees failed to produce corroborative evidence such as delivery challans, octroi receipts, or confirmations from the alleged dealers. The Tribunal noted that the onus was on the assessees to prove the genuineness of the transactions.Non-provision of Opportunity for Cross-examination:In several cases, the assessees contended that the AO did not provide them with the statements recorded by the Sales Tax Department or allow them to cross-examine the witnesses. The Tribunal held that in the absence of such opportunity, the additions could not be justified. This principle was upheld in cases like M/s. Chhabi Electricals Pvt. Ltd. and Maa Saraswati Steel Industries, where the Tribunal deleted the additions due to the non-provision of statements or cross-examination opportunities.Reassessment Proceedings:Some assessees challenged the reassessment proceedings initiated under section 148 of the Income-tax Act, 1961, arguing that they were not provided with the basis for the reassessment. The Tribunal, following the decision of the Hon'ble Bombay High Court in H.R. Mehta Vs. ACIT, annulled the reassessment proceedings in cases where the AO failed to provide the necessary information or confront the assessees with the evidence relied upon for initiating reassessment.Estimation of Gross Profit (GP) Rate on Alleged Bogus Purchases:In instances where the assessees were able to provide some evidence of the purchases but not conclusively prove their genuineness, the Tribunal adopted an estimation approach. The Tribunal referred to its earlier decisions and applied a GP rate of 10% on the alleged bogus purchases over and above the GP declared by the assessees. This approach was followed in cases like M/s. Chetan Enterprises Vs. ACIT and Cronimate India Metals Pvt. Ltd., where the Tribunal found that the assessees had maintained some level of documentation and evidence of the transactions.Maintenance of Stock Details and Corroborative Evidence:The Tribunal emphasized the importance of maintaining complete quantitative details and corroborative evidence to substantiate the genuineness of purchases. In cases where the assessees failed to maintain such records or provide evidence of the movement of goods, the Tribunal upheld the additions made by the AO. Conversely, where the assessees were able to demonstrate a clear trail of purchases and sales, the Tribunal restricted the additions to an estimated GP rate rather than the entire amount of alleged bogus purchases.Conclusion:The Tribunal's consolidated order addresses various appeals concerning the issue of bogus purchases, emphasizing the need for assessees to provide substantial evidence to prove the genuineness of their transactions. The decisions highlight the importance of procedural fairness, including the provision of statements and opportunities for cross-examination, and adopt a balanced approach in estimating income where complete evidence is not available. The judgments reflect a consistent application of legal principles while considering the specific facts and circumstances of each case.