2016 (1) TMI 1312 - AT - Income Tax

Bogus purchases - unexplained expenditure - addition at the rate of 15% of the purchases made by the assessee from suspicious dealers whose names were listed in the website of the Sales Tax Department - not able to prove genuineness of the purchases- Held that - Hon ble Gujarat High Court in the case of CIT vs. M.K. Brothers (1985 (10) TMI 15 - GUJARAT High Court) has held that where there was nothing to indicate that the amount given by the assessee for the purchases made had come back to the assessee in any other form and where there was no evidence that the said concerns gave bogus vouchers to the assessee and even the statements made by the alleged suppliers in no way implicate the transaction with the assessee then under such circumstances it cannot be said that entries for the purchase of goods made in the books of account of the assessee were bogus and no addition in this respect can be made. As the transactions were supported with evidences and confirmations in such an event merely because the suppliers whose names were listed in the list of suspicious dealers as provided in the official website of Sales Tax Department Government of Maharashtra who were allegedly providing accommodation entries without doing actual business and have not appeared before the AO or the Ld. CIT(A) one cannot conclude that the purchases were not genuine. Even when it is not the case of the Revenue that sales turnover of the assessee has decreased or the net profit ratio is less than the earlier assessment years or the subsequent assessment years then in our view making addition on assumption that the assessee would have booked a lesser profit has no justification. No merit in the action of the lower authorities in making/sustaining the impugned additions and the same are accordingly ordered to be deleted. - Decided in favour of assessee.

Summary

Issues Involved:
- Agitation of the action of the Ld. CIT(A) in sustaining the addition at the rate of 15% of purchases made from suspicious dealers.
- Agitation of the action of the Ld. CIT(A) in restricting the addition to 15% of purchases instead of the total addition made by the AO.
- Examination of the genuineness of purchases made from parties listed as suspicious dealers by the Sales Tax Department.
- Analysis of the evidence provided by the assessee to prove the legitimacy of purchases and payments made.
- Consideration of legal precedents and judgments related to similar cases to determine the validity of the additions made by the lower authorities.

Detailed Analysis:

1. The cross appeals were filed against the order of the CIT(A) for the assessment year 2010-11. The assessee challenged the addition of 15% of purchases made from suspicious dealers, while the Revenue contested the restriction of the addition to 15% instead of the total amount added by the AO.

2. The AO noted purchases made by the assessee from parties listed as suspicious dealers by the Sales Tax Department. The AO treated these purchases as bogus and added an amount to the assessee's income. The CIT(A) upheld the addition of 15% of the purchases as unexplained investment, leading to increased profit.

3. The assessee provided evidence such as ledger accounts, purchase bills, bank statements, and stock details to prove the legitimacy of transactions. The Revenue relied on the AO's findings, but no concrete evidence was presented to prove the purchases were fake.

4. Legal arguments cited judgments like "CIT v. M/s. Nikunj Eximp Enterprises Pvt. Ltd." and "Diagnostics v. CIT" to support the assessee's case. The Gujarat High Court's decision in "CIT vs. M.K. Brothers" was referenced to emphasize the lack of evidence implicating the transactions.

5. The Tribunal found no justification for the additions made by the lower authorities. Lack of evidence proving bogus purchases, coupled with legitimate sales and profit margins, led to the deletion of the additions. The appeal of the assessee was allowed, while the Revenue's appeal was dismissed.

6. The judgment emphasized the importance of concrete evidence in proving allegations of bogus transactions. Legal precedents and the absence of substantial proof led to the decision to delete the additions made by the lower authorities.

Conclusion:
The Tribunal ruled in favor of the assessee, highlighting the necessity of concrete evidence to substantiate claims of fraudulent transactions. Legal precedents and lack of conclusive proof resulted in the deletion of the additions, emphasizing the importance of thorough examination and evidence in tax assessments.