2017 (12) TMI 797 - AT - Income Tax

Tribunal upholds disallowance of 6.5% bogus purchases for 2010-11 & 2011-12, rejects higher addition appeal.

The Tribunal upheld the disallowance of 6.5% of bogus purchases for the assessment years 2010-11 and 2011-12. It confirmed the validity of reopening the ... Disallowance of bogus purchase - Held that:- The Sales Tax Department in its enquiry has found the parties to be providing bogus accommodation entries. The assessing officer also issued notices to these parties at the addresses provided by the assessee. All these notices have returned unserved. Assessee has not been able to produce any of the parties. Neither the assessee has been able to produce any confirmation from these parties. In such circumstances, there is no doubt that these parties are non-existent. We find it further strange that assessee wants the Revenue to produce assessee’s own vendors, whom the assessee could not produce. The purchase bills from these non-existent/bogus parties cannot be taken as cogent evidence of purchases. In light of the overwhelming evidence, the Revenue authorities cannot put upon blinkers and accept these purchases as genuine. This proposition is duly supported by Hon’ble Apex Court decision in the case of Sumati Dayal vs. CIT [1995 (3) TMI 3 - SUPREME Court] and CIT vs. Durga Prasad More [1971 (8) TMI 17 - SUPREME Court]. In the present case, the assessee wants that the unassailable fact that the suppliers are non-existent and, thus, bogus should be ignored and only the documents being produced should be considered. This proposition is totally unsustainable in light of Hon’ble Apex Court decisions. - Decided against assessee. For A.Y. 2011-12 we direct that 6.5% disallowance for bogus purchase by the ld. Commissioner of Income Tax (Appeals) serves the interest of justice. The Hon'ble jurisdictional High Court in the case of Nikunj Eximp Enterprises (2013 (1) TMI 88 - BOMBAY HIGH COURT ) has also expounded that when sales are not doubted, 100% disallowance of purchase is not feasible. Although fact of the case were a little different as referred above. As regards the ground raised by the assessee that only 2% disallowance should be done following the Tribunal’s decision we are of the considered opinion that in our order we have followed Hon’ble High Court decision. In the hierarchy of judicial precedence, the decision of the higher court prevail over the tribunal decision. Hence, we dismiss these grounds raised by the assessee. Issues Involved:1. Sustaining disallowance of 6.5% of bogus purchases for the assessment year 2010-11.2. Validity of reopening the assessment under Section 147 for the assessment year 2010-11.3. Sustaining 6.5% addition for bogus purchases for the assessment year 2011-12.4. Revenue's appeal for sustaining 12.5% addition for bogus purchases for the assessment year 2011-12.5. Assessee's cross objection for restricting addition to 2% of bogus purchases for the assessment year 2011-12.Detailed Analysis:1. Sustaining Disallowance of 6.5% of Bogus Purchases for the Assessment Year 2010-11:The assessee filed a return declaring total income of Rs. 9,15,521/- for the assessment year 2010-11. The Assessing Officer (AO) received information from the Sales Tax Department about accommodation entry providers and identified bogus purchases amounting to Rs. 3,74,86,467/- from nine parties. The AO issued notice under Section 148 and reopened the case. During the assessment proceedings, the assessee failed to provide substantial evidence such as delivery challans, transport receipts, and confirmations from the parties. Consequently, the AO made an addition of 12.5% of the total alleged bogus purchases, i.e., Rs. 46,85,809/-. The Commissioner of Income Tax (Appeals) reduced this addition to 6.5%.2. Validity of Reopening the Assessment under Section 147 for the Assessment Year 2010-11:The Commissioner of Income Tax (Appeals) upheld the reopening of the assessment, stating that the AO had 'reason to believe' that income had escaped assessment based on credible information from the Sales Tax Department. The information was not anonymous but authenticated, and the AO had applied his mind and satisfied himself about the reopening. The reopening was deemed legal and valid, supported by various judicial precedents, including the Supreme Court's decision in ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd.3. Sustaining 6.5% Addition for Bogus Purchases for the Assessment Year 2011-12:For the assessment year 2011-12, the facts were similar to those of 2010-11. The Commissioner of Income Tax (Appeals) sustained a 6.5% addition for bogus purchases. The Tribunal confirmed this order, noting that credible information indicated the use of bogus bills, and the assessee failed to provide confirmations or produce the parties involved. The Tribunal held that mere preparation of purchase documents could not counter the overwhelming evidence of the non-existence of the suppliers.4. Revenue's Appeal for Sustaining 12.5% Addition for Bogus Purchases for the Assessment Year 2011-12:The Revenue appealed against the reduction of the addition to 6.5%, arguing that the Commissioner of Income Tax (Appeals) should have sustained the AO's 12.5% addition. However, the Tribunal upheld the 6.5% addition, consistent with its decision for the assessment year 2010-11. The Tribunal referenced the Hon'ble Gujarat High Court's decision in N K Industries vs. Dy. CIT, which upheld 100% disallowance of bogus purchases, but noted that the Revenue had not appealed the 6.5% addition for the previous year.5. Assessee's Cross Objection for Restricting Addition to 2% of Bogus Purchases for the Assessment Year 2011-12:The assessee filed a cross objection, urging that the addition should be restricted to 2%, referencing a similar ITAT decision. However, the Tribunal dismissed this ground, emphasizing that judicial precedence from higher courts, such as the Hon'ble High Court's decisions, prevails over Tribunal decisions. The Tribunal maintained the 6.5% addition as reasonable and just.Conclusion:The Tribunal dismissed all appeals, cross objections, and additional grounds, confirming the orders of the Commissioner of Income Tax (Appeals) for both assessment years. The disallowance of 6.5% of bogus purchases was sustained, and the reopening of the assessment under Section 147 was upheld as valid. The Tribunal's decisions were consistent with judicial precedents and the evidence presented.