2024 (5) TMI 297 - AT - Income Tax

Tribunal Upholds Rs. 63.7L Bogus Purchase Addition; Dismisses Appeals on Profit Margin & Procedural Grounds.

Rohit Vallabhdas Shah Versus Income Tax Officer – 42 (1) (4), Mumbai

The ITAT dismissed the appellant's appeal against the Rs. 63,70,738 addition as bogus purchases, citing the failure to provide supporting documents. The ... Estimation of income - bogus purchases - whether the AO is justified in making 100% addition of the bogus purchase amount or he should have added only the profit margin earned by the assessee? - HELD THAT:- The Hon’ble Gujarat High Court in the case of N.K. Industries Ltd.[2016 (6) TMI 1139 - GUJARAT HIGH COURT] has held that once it comes to a categorical finding that the amount represents alleged bogus purchases from bogus suppliers it is not incumbent to restrict the disallowance and thereby directed to make addition of 100% of the alleged bogus purchases. The SLP preferred by the assessee against this decision of the Hon’ble High Court has been dismissed by the Hon’ble Supreme Court[2017 (1) TMI 1090 - SC ORDER]. We find that the First Appellate Authority has followed this decision of the Hon’ble Gujarat High Court. As no distinguishing decision has been brought to our notice in favour of assessee, we do not find any reason to interfere with the findings of the Ld. CIT(A). Appeal filed by the assessee is dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether, where purchases are found to be bogus/accommodation bills and the assessee fails to establish identity of suppliers or genuineness of transactions, the Assessing Officer is justified in disallowing 100% of the alleged bogus purchases or whether only the assessee's profit margin should be added to income. 2. Whether findings based on information from sales tax authorities, absence of delivery challans, lack of acknowledgement of receipt and non-production of suppliers constitute sufficient basis for treating purchases as non-genuine and for making the impugned addition. 3. Whether a ground challenging validity of service of notices under section 143(2)/142(1) (raised before the tribunal) could be considered where it was not pressed at hearing. ISSUE-WISE DETAILED ANALYSIS Issue 1: Extent of addition where purchases are held to be bogus - 100% disallowance v. profit-margin only Legal framework: The Assessing Officer has power to make additions to taxable income where purchases are shown by the assessment material to be bogus or accommodation entries. The question is the quantification of such addition - full value of purchases disallowed or only the profit element added to income. Precedent Treatment: The Tribunal applied a higher-court decision which holds that once there is a categorical finding that amounts represent bogus purchases from bogus suppliers, it is permissible to disallow 100% of the alleged bogus purchases. That higher-court decision was not distinguished and an attempt to challenge it at the apex level was dismissed. Interpretation and reasoning: The Tribunal accepted that the assessee did not establish identity or genuineness of suppliers and conceded procurement of accommodation bills. Given those facts, the Tribunal considered whether principles require limiting the addition to the profit margin. Relying on authoritative precedent, the Tribunal reasoned that a categorical finding of bogus purchases permits a full disallowance; the purpose is to negate any pretense of business expenditure reflected by accommodation bills. The Tribunal noted absence of any conflicting binding decision favouring apportionment to profit margin only. Ratio vs. Obiter: The holding that 100% addition is justified when purchases are found to be bogus is treated as the ratio applied by the Tribunal in disposing of the appeal; reliance on the higher-court decision is central to the decision and is not obiter. Conclusion: The Tribunal upheld the 100% disallowance of the alleged bogus purchases and rejected the contention that only the profit margin (approx. 1.35% claimed) should have been added. Issue 2: Sufficiency of assessment material (information from sales tax authorities; absence of delivery challans; non-production of suppliers) Legal framework: Assessment may be based on information from other authorities and on materials such as absence of delivery challans, lack of acknowledgment of receipt, and non-production of suppliers; these factors are relevant to establish non-genuineness of purchases. Precedent Treatment: The Tribunal treated the assessment-record-based findings and corroborating material as adequate to sustain a finding of bogus purchases where the assessee could not rebut the material or prove identity/genuineness of the transactions. Interpretation and reasoning: The Tribunal accepted the Assessing Officer's factual findings drawn from sales-tax inputs and documentary deficiencies. It observed that the assessee neither produced delivery challans nor supporting receipts and did not produce suppliers for verification; moreover the assessee admitted acquiring accommodation bills. On that factual matrix the Tribunal concluded the findings of non-genuineness were justified and that the AO's inference to treat purchases as bogus was sustainable. Ratio vs. Obiter: The conclusion that the AO's reliance on such assessment materials suffices to sustain a finding of bogus purchases is applied as ratio in this appeal; it is outcome-determinative rather than obiter. Conclusion: The Tribunal found the assessment material sufficient to justify treating the purchases as non-genuine and to support the quantum of addition (as quantified under Issue 1). Issue 3: Failure to press challenge to validity of service of notices under sections 143(2)/142(1) Legal framework: Grounds not pressed at hearing are treated as not pressed and may be dismissed accordingly. Precedent Treatment: The Tribunal followed the settled practice that unpressed grounds are dismissed as not pressed and are not considered on merits unless pressed. Interpretation and reasoning: The assessee's counsel expressly stated that this ground was not pressed. Consequently the Tribunal did not adjudicate the validity of service of notice and dismissed the ground as not pressed. Ratio vs. Obiter: The dismissal of the unpressed ground as not pressed is procedural and incidental; it is not a substantive ratio on the merits of notice service validity. Conclusion: The ground challenging service of notices under sections 143(2)/142(1) was dismissed as not pressed and received no further consideration. Cross-References 1. Issue 1 and Issue 2 are interlinked: the factual sufficiency identified under Issue 2 (non-production, lack of documents, admission of accommodation bills) forms the basis for applying the precedent principle in Issue 1 that permits 100% disallowance when purchases are found to be bogus. 2. Issue 3 is procedural and separate; its dismissal as not pressed does not affect the Tribunal's substantive determinations on Issues 1 and 2. Overall Conclusion The Tribunal upheld the addition made by the Assessing Officer in full (100% of the alleged bogus purchases) on the basis that the assessee failed to establish identity and genuineness of suppliers, admitted procurement of accommodation bills, and in light of binding precedent permitting full disallowance where purchases are found to be bogus; the procedural ground on notice service was dismissed as not pressed.