2024 (4) TMI 586 - AT - Income Tax

ITAT upholds 12.5% addition on bogus purchases from hawala traders providing accommodation entries

ITO-19 (3) (1), Mumbai Versus Sagar Steel Corporation

ITAT Mumbai upheld CIT(A)'s decision restricting addition to 12.5% of bogus purchases where Sales Tax Department proved parties were hawala traders ... Estimation of income - bogus purchases - Sales Tax Department has proved beyond doubt that the parties declared as hawala traders were involved in providing accommodation entry of purchases and the assessee was one of the beneficiary of accepting accommodation entry for the purchase - CIT(A) restricted addition to 12.5% of total bogus purchases - HELD THAT:- CIT - A while confirming the addition to the extent of 12.5% of the bogus purchases directed the learned assessing officer to allow deduction of gross profit already returned by the assessee in the regular books of account in respect of purchases made from the said alleged hawala bogus suppliers also. We find that CIT – A has correctly upheld the addition to the extent of 12.5% when the complete stock register showing quantitative details along with undisputed sales are accepted. No infirmity was pointed out by the learned departmental representative that when learned CIT – A has followed the decision of Vishwashakti Construction [2023 (5) TMI 278 - BOMBAY HIGH COURT] and retained the addition to the extent of 12.5% of the bogus purchases correctly - Decided against revenue. Issues Involved:The appeal filed by the Income Tax Officer against the appellate order passed by the National Faceless Appeal Centre for assessment year 2011-12 under section 147 read with section 144 of The Income Tax Act.Issue 1: Restriction of Addition on Account of Bogus PurchaseThe learned CIT (A) restricted the addition made on account of bogus purchase to 12.5% of total bogus purchases, considering the involvement of hawala traders and accommodation entries. The Sales Tax Department's findings were a crucial factor in this decision.Issue 2: Admission of New EvidencesThe learned CIT (A) admitted new evidence without seeking a remand report from the Assessing Officer as required by rule 46B of the Income Tax Rule, 1952, raising a procedural issue.Issue 3: Deletion of Unexplained Purchase AmountThe learned CIT (A) deleted the unexplained purchase amount added by the Assessing Officer, citing lack of compliance by the assessee and purchases from parties engaged in bills-trading without actual trading activity.Issue 4: Failure to Produce Parties for VerificationThe learned CIT (A) noted the assessee's failure to produce parties for verification, despite opportunities provided by the Assessing Officer, raising concerns about substantiating transactions.Issue 5: Examination of Quantity TallyThe learned CIT (A) was criticized for restricting the addition to 12.5% of total bogus purchases without examining the quantity tally of day-to-day transactions, sales, stocks, and corresponding values.Issue 6: Deletion of Addition Without Appreciating Supreme Court DecisionThe learned CIT (A) deleted an addition made by the Assessing Officer without appreciating the Supreme Court's decision in N.K. Proteins Ltd., emphasizing the liability of disallowing purchases from bogus suppliers.Issue 7: Deletion of Addition Without Substantiating SalesThe learned CIT (A) deleted an addition without substantiating sales corresponding to bogus purchases, leading to a discrepancy in the assessment proceedings.The appeal involved intricate issues related to bogus purchases, procedural lapses, evidentiary requirements, and judicial precedents. The decision highlighted the importance of substantiating transactions, complying with procedural rules, and considering relevant legal precedents to determine the extent of additions in such cases.