2022 (2) TMI 1510 - AT - Income Tax

ITAT reduces disallowance on bogus purchases from 12.5% to 6% after detailed material analysis

The ITAT Surat upheld the Tribunal's decision to reduce the disallowance on bogus purchases from 12.5% to 6%, finding that the conclusion was based on a ... Estimation of income - Bogus purchases - HELD THAT:- This Court in case of Pankaj K. Choudhary [2023 (3) TMI 1402 - GUJARAT HIGH COURT] held that conclusion arrived at by the appellant Tribunal are based on material before it and after analysing the facts and figure available before it. When the Tribunal has thought it fit to reduce the disallowance at 6% from 12.5%, the Tribunal had before it the facts which were duly analysed by it. No interference is called for in the said conclusion and findings of the Tribunal in the present appeal by this court. No substantial questions of law arise in the facts of the present case. ISSUES: Validity of reopening assessment under section 147 of the Income Tax Act, 1961 based on information from investigation wing regarding accommodation entries.Admissibility and evidentiary value of statements recorded under section 132(4) of the Income Tax Act, 1961 during search proceedings.Whether purchases from certain entities are bogus and liable for disallowance under section 69C of the Income Tax Act, 1961.Whether the books of account maintained by the assessee can be rejected under section 145(2) of the Income Tax Act, 1961.Extent of disallowance of bogus purchases-whether 100% disallowance or partial disallowance is justified.Whether the assessee was denied opportunity for cross-examination of third-party declarants whose statements were relied upon for additions. RULINGS / HOLDINGS: The reopening of assessment under section 147 was validly done on the basis of credible information from the investigation wing that the assessee was a beneficiary of accommodation entries; mere suspicion suffices as held by the jurisdictional High Court.Statements recorded under section 132(4) of the Income Tax Act, made on oath during search, have 'great evidentiary value' and are binding on the person making them; such statements can be used as evidence for assessment and additions.The purchases from the identified entities were held to be bogus as these entities were 'paper concerns with no real business activities,' and the modus operandi involved accommodation entries and bogus transactions to suppress true turnover and inflate expenses.The books of account were rightly rejected under section 145(2) due to the presence of bogus purchases and non-genuine transactions, supported by search findings and admissions.100% disallowance of bogus purchases was not justified; considering the gross profit rate declared by the assessee and precedents, a partial disallowance at 6% of the disputed purchases was held reasonable to prevent revenue leakage.The assessee was not entitled to cross-examination of persons whose statements under section 132(4) were relied upon; the law does not mandate cross-examination in such search proceedings. RATIONALE: The Court applied the provisions of the Income Tax Act, 1961, particularly sections 132(4), 145(2), 147, and 69C, and relied on admissions recorded during search operations as well as corroborative evidence found during investigations.The Court followed binding precedents from the jurisdictional High Court affirming the validity of reopening assessments based on information about accommodation entries and the evidentiary value of statements under section 132(4).The Court recognized the modus operandi involving benami concerns issuing bogus purchase bills and accommodation entries, supported by documentary evidence and statements on oath, leading to rejection of books and addition of unexplained expenditure.The principle that tax authorities are entitled to make additions based on admissions under oath and corroborative evidence was upheld, emphasizing that such admissions cannot be lightly retracted without proof of coercion or undue pressure.In determining the extent of disallowance, the Court balanced the need to prevent revenue leakage against the declared gross profit rate, following precedents that additions should be proportionate to the income component rather than taxing entire disputed transactions.The Court distinguished statements under section 132(4) from other statements under sections 131 and 133A, noting the special evidentiary status of sworn statements recorded during search and seizure operations.The Court relied on a coordinate bench decision on identical issues, applying the principle of judicial consistency and mutatis mutandis application of findings.