2017 (11) TMI 1134 - AT - Income Tax

Partial relief granted in appeal on bogus purchases disallowance, profit estimation emphasized to safeguard Revenue

The appeal of the assessee was partly allowed, with the disallowance restricted to 20% of the bogus purchases amounting to Rs. 3,55,00,233. The Tribunal ... Addition on account of bogus purchases - estimation of profit - Held that:- The assessee could not produce the necessary details like delivery of challans, etc.. As per the Revenue, at the same time, the assessee did not produce the evidence of genuine purchase, therefore, considering the material facts, we have no option but to estimate the profit. It will meet the end of justice and to put an end to the litigation, if the disallowance is restricted to @ 20% (as agreed by the ld. counsel for the assessee) of the bogus purchases. It will the safeguard the interest of Revenue and will cover the leakage of revenue. Accordingly, the appeal of the assessee is partly allowed. Issues Involved:1. Reopening of assessment under Section 147 read with Section 148 of the Income Tax Act, 1961.2. Addition on account of bogus purchases amounting to Rs. 3,55,00,233/-.Issue-wise Detailed Analysis:1. Reopening of Assessment under Section 147 read with Section 148 of the Income Tax Act, 1961:The assessee did not contest the ground of reopening of assessment under Section 147 read with Section 148 of the Income Tax Act, 1961. Consequently, ground no. 4 was dismissed as not pressed.2. Addition on Account of Bogus Purchases:The primary issue contested was the confirmation of the addition of Rs. 3,55,00,233/- on account of bogus purchases. The assessee argued that sufficient opportunity was not provided and that the addition was made solely based on information received by the Assessing Officer without any independent enquiry. The Revenue contended that the assessee failed to prove consumption and did not file necessary details before the Assessing Officer, justifying the addition.Legal Precedents and Tribunal’s Analysis:The Tribunal considered various decisions from Hon’ble High Courts and the Apex Court to reach a proper conclusion. Key judgments referenced include:- Sanjay Oilcakes Industries vs CIT (2009) 316 ITR 274 (Guj.): The Gujarat High Court held that the apparent sellers were not traceable, and the goods were received from other parties. The purchases were shown through banking channels, and the likelihood of inflated purchase prices could not be ruled out. The addition at the rate of 25% was deemed fair and reasonable.- CIT vs Bholanath Poly Fab. Pvt. Ltd. (2013) 355 ITR 290 (Guj.): The Tribunal concluded that the purchases were made from other sources, not the parties shown in the accounts. Therefore, only the profit margin embedded in such purchases should be taxed.- CIT vs Vijay M. Mistry Construction Ltd. (2013) 355 ITR 498 (Guj.): The Tribunal restricted the disallowance to 25%, considering it an estimate, which is a question of fact and not law.- CIT vs Ashish International Ltd. (ITA No.4299/2009): The Tribunal found that the assessee was not given an opportunity to cross-examine the concerned director whose statement was relied upon by the Revenue, leading to the deletion of the addition.- CIT vs Nikunj Exim Enterprises Pvt. Ltd. (2015) 372 ITR 619 (Bom.): The Tribunal deleted the additions on account of bogus purchases based on stock statements, confirmation letters from suppliers, and the fact that substantial sales were made to government departments.- CIT vs M.K. Brothers (163 ITR 249): The Tribunal noted that there was no evidence to conclude that the purchases were bogus, despite certain doubtful features.- DCIT vs Rajeev G. Kalathil (2015) 67 SOT 52 (Mum. Trib.)(URO): The Tribunal held that suspicion alone cannot replace evidence, and the addition was deleted as there was no independent and reliable evidence to prove non-genuineness of the purchases.- N.K. Industries Ltd. vs DCIT (IT Appeal No.240, 261, 242, 260 and 241 of 2003): The Gujarat High Court upheld the addition of the entire income on account of bogus purchases, confirmed by the Apex Court.Conclusion:The Tribunal acknowledged that there cannot be sales without purchases and noted the bogus nature of purchases made from suppliers who were not found at the given addresses. The Tribunal emphasized the necessity of estimating the profit in such cases. Given the facts, the Tribunal decided to restrict the disallowance to 20% of the bogus purchases, as agreed by the assessee's counsel, to safeguard the interest of Revenue and cover the leakage of revenue. Consequently, the appeal of the assessee was partly allowed.Final Decision:The appeal of the assessee was partly allowed, with the disallowance restricted to 20% of the bogus purchases. This order was pronounced in the open court on 14/09/2017.