2020 (3) TMI 135 - AT - Income Tax

Tribunal Upholds Decision on Disallowance, Emphasizes Burden of Proof

Deputy Commissioner of Income Tax-8 (2) (1), Mumbai Versus M/s Shree Sai Steel Industries India Pvt. ltd.

The Tribunal upheld the CIT(A)'s decision to restrict the disallowance to 12.5% of the total value of alleged bogus purchases, dismissing the revenue's ... Bogus purchases - CIT-A restricting the addition to 12.5% on account of bogus purchases as the parties from whom purchases were made were hawala dealers and absolute burden of proof is cast on the assessee and this burden of proof never shifts to the Department - HELD THAT:- We respectfully following the view taken by the Tribunal while disposing off the assesses appeal for A.Y. 2009-10 [2019 (7) TMI 1581 - ITAT MUMBAI] therein uphold the sustaining of the disallowance to the extent of 12.5% of the aggregate value of the impugned purchases by the CIT(A). Accordingly, in terms of our aforesaid observations the appeal filed by the revenue is dismissed. Issues:- Disallowance of entire value of purchases due to suspicion of bogus transactions- Assessment of income based on alleged bogus purchases- Appeal challenging the CIT(A)'s decision to restrict the disallowance to 12.5%- Burden of proof on the assessee in case of suspected bogus transactions- Application of Indian Evidence Act in cases of unexplained factsIssue 1: Disallowance of entire value of purchases due to suspicion of bogus transactionsThe case involved the revenue appealing against the CIT(A)'s order that arose from the AO's decision under Sec.143(3) r.w.s 147 of the Income Tax Act,1961. The AO suspected bogus purchases amounting to Rs. 42,95,62,364 by the assessee from four parties. Despite directions to produce parties and supporting documents, the assessee failed to comply. Consequently, the AO disallowed the entire value of the purchases. The CIT(A) observed a correlation between purchases and sales in the stock register, leading to the conclusion that purchases were made from the open/grey market, not hawala parties. Thus, the CIT(A) restricted the disallowance to 12.5% of the total purchase value.Issue 2: Assessment of income based on alleged bogus purchasesThe assessee, a trading company, declared total income of Rs. 1,45,65,720 for A.Y. 2009-10. However, the AO reopened the case under Sec.147 based on suspicions of bogus purchases. The AO disallowed the entire value of the alleged bogus purchases, resulting in an assessed income of Rs. 44,41,96,084. The CIT(A) disagreed with the AO's approach, considering the stock register and industry norms, and restricted the disallowance to 12.5% of the total purchase value.Issue 3: Appeal challenging the CIT(A)'s decision to restrict the disallowance to 12.5%The revenue appealed against the CIT(A)'s decision to limit the disallowance to 12.5% of the aggregate value of the alleged bogus purchases. The Tribunal upheld the CIT(A)'s decision, citing the need to tax only the real income and considering the nature of the business. Various legal precedents were referenced to support the decision, emphasizing that only the profit attributable to unrecorded sales should be taxed. The Tribunal found no illegality in the CIT(A)'s order and dismissed the revenue's appeal.Issue 4: Burden of proof on the assessee in case of suspected bogus transactionsThe AO suspected the assessee of booking bogus purchases but failed to substantiate the authenticity of the transactions. The burden of proof was on the assessee to demonstrate the genuineness of the purchases, which they failed to do. The CIT(A) considered the lack of evidence and industry practices in restricting the disallowance to 12.5% of the purchase value.Issue 5: Application of Indian Evidence Act in cases of unexplained factsThe revenue argued for the application of Section 114(g) of the Indian Evidence Act to draw adverse inferences due to unexplained facts. However, the Tribunal upheld the CIT(A)'s decision based on the evidence and legal principles, emphasizing the need to tax only the real income and considering the business context. The Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s decision to restrict the disallowance to 12.5% of the alleged bogus purchases.In conclusion, the Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decision to restrict the disallowance to 12.5% of the total value of the alleged bogus purchases, based on the evidence presented and legal principles applied.