2010 (4) TMI 1126 - AT - Income Tax

Summary

Issues Involved:
1. Bogus Purchases from M/s. Deep Chem.
2. Bogus Purchases from Seven Other Parties.
3. Disallowance of Purchases by CIT(A).
4. Appeals by Assessee and Revenue.

Summary:

1. Bogus Purchases from M/s. Deep Chem:
The Assessing Officer (AO) noticed a drastic fall in the gross profit and net profit percentages from the previous year. Upon investigation, it was found that the assessee had purchased raw material worth Rs. 55,64,931 from M/s. Deep Chem. The proprietor of M/s. Deep Chem, Shri Apurva Ashwin Masalia, admitted to issuing accommodation bills without actual sales. Despite opportunities, the assessee did not respond or cross-examine Shri Masalia. Consequently, the AO added Rs. 55,64,931 to the assessee's income as bogus purchases.

2. Bogus Purchases from Seven Other Parties:
The AO issued notices u/s 133(6) to seven other parties to verify the genuineness of purchases amounting to Rs. 4,70,72,384. One notice was returned unserved, and the other six parties did not respond. The assessee failed to produce these parties for verification. The AO, therefore, added Rs. 4,70,72,384 to the assessee's income as bogus purchases, totaling Rs. 5,26,37,315 (Rs. 55,64,931 + Rs. 4,70,72,384).

3. Disallowance of Purchases by CIT(A):
The CIT(A) noted that the assessee maintained proper books of account, audited by auditors, and the AO did not find any fault to reject them. The CIT(A) observed that the assessee might have inserted accommodation bills for other purchases made without bills to set right its records. The CIT(A) held that disallowing the entire claim of purchases was not justified. Instead, the CIT(A) directed the AO to restrict the disallowance to 8% of the total purchases, amounting to Rs. 42,10,985.

4. Appeals by Assessee and Revenue:
Both the assessee and the Revenue appealed against the CIT(A)'s order. The Revenue argued that the entire amount of Rs. 5,26,37,320 should be added to the assessee's income. The assessee contended that the disallowance of 8% was too high. The Tribunal found merit in the Revenue's argument regarding the Rs. 55,64,931 from M/s. Deep Chem and upheld the addition. However, for the remaining seven parties, the Tribunal restored the matter to the AO for fresh verification, giving the assessee another opportunity to substantiate the genuineness of the purchases.

Conclusion:
The appeal filed by the Revenue was partly allowed for statistical purposes, and the appeal filed by the assessee was dismissed.