2016 (7) TMI 1255 - AT - Income Tax

Bogus purchases - Addition u/s 69 - Held that - There is no doubt that the AO had accepted the genuineness of sales made by the assessee. He had not made any effort to make further investigation to substantiate his allegations with regard to non genuineness of the purchases.Considering the facts and circumstances of the case, we are of the opinion that the FAA was not justified in partly upholding the additions. Reversing the order of the FAA we decide the effective Ground of appeal in favour of the assessee. See case of Ashok Talreja-HUF 2016 (3) TMI 1088 - ITAT MUMBAI

Issues Involved:
1. Legitimacy of reopening assessments under Section 147 of the Income Tax Act.
2. Validity of additions made under Section 69 of the Income Tax Act for alleged bogus purchases.
3. Appropriateness of the percentage of addition upheld by the First Appellate Authority (FAA).

Issue-wise Detailed Analysis:

1. Legitimacy of Reopening Assessments under Section 147 of the Income Tax Act:
The Assessing Officer (AO) reopened the assessments for the Assessment Years (AY) 2006-07 and 2007-08 under Section 147 of the Income Tax Act. The reasons for reopening were based on information gathered during a survey operation at the business premises of Rakeshkumar M. Gupta (RKG), indicating that the assessee had made purchases from entities controlled by RKG, which were suspected to be issuing accommodation bills without actual purchases. The reopening was challenged by the assessee but upheld by the appellate authorities as the reasons recorded by the AO were deemed sufficient.

2. Validity of Additions Made under Section 69 of the Income Tax Act for Alleged Bogus Purchases:
The AO added amounts of ?41.68 lakhs for AY 2006-07 and similar amounts for AY 2007-08 to the total income of the assessee, treating the purchases from RKG's entities as bogus. The AO's decision was based on statements from RKG admitting to issuing accommodation bills. However, the First Appellate Authority (FAA) noted that the AO did not provide the assessee an opportunity to cross-examine RKG and that the assessee had submitted detailed documentation, including day-to-day movement of materials and corresponding sales/inventory records. The FAA concluded that while some purchases might be inflated, the entire amount could not be treated as bogus, thus reducing the addition to 10% of the alleged bogus purchases.

3. Appropriateness of the Percentage of Addition Upheld by the FAA:
The FAA upheld an addition of 10% of the alleged bogus purchases, amounting to ?4.16 lakhs for AY 2006-07, and similar adjustments for AY 2007-08. This decision was based on the principle that if sales are treated as genuine, corresponding purchases cannot be entirely considered bogus. The FAA aimed to address any discrepancies in Gross Profit (GP) and potential revenue leakage. The Tribunal, however, found that the AO had accepted the genuineness of the sales and had not made further investigations to substantiate the allegations of non-genuine purchases. Citing precedents from similar cases (e.g., Goolamally Hassanji, Jeetendra Harshadkumar Textiles, Nikunj Exim Enterprises Pvt. Ltd.), the Tribunal concluded that no disallowance was warranted and thus reversed the FAA's partial addition.

Conclusion:
The Tribunal dismissed the appeals filed by the AO and allowed the appeals of the assessee, ruling that the AO had not justified the additions made under Section 69. The Tribunal emphasized that without further investigation and given the acceptance of sales as genuine, the purchases could not be deemed entirely bogus. The Tribunal followed precedents where similar issues were decided in favor of the assessee, leading to the deletion of the additions upheld by the FAA.

Order Pronounced:
The appeals filed by the AO were dismissed, and the appeals of the assessee were allowed, with the order pronounced in the open court on 22nd July 2016.

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