2017 (10) TMI 1286 - AT - Income Tax

Addition on bogus purchases - addition relying on information from Maharashtra Sales Tax Department - CIT(A) upheld the addition of 12.5% by observing that purchases were not bogus, however, assessee might have shown lower income by taking bill from unregistered dealers - Held that - Keeping in view profit rate declared by the assessee at 13% vis- -vis judicial pronouncements cited by learned AR during the course of hearing, modify the order of the lower authorities and direct the AO to restrict addition to the extent of 10% of alleged bogus purchases. - Decided partly in favour of assessee.

Summary

Issues:
- Addition of 12.5% on alleged bogus purchases
- Validity of addition made by AO
- CIT(A) decision on the genuineness of purchases
- Cross objection by assessee against CIT(A) decision
- AO's estimation of profit and subsequent appeal by revenue

Analysis:
The appeal and cross objection arose from the order of the CIT(A)-52, Mumbai concerning the assessment year 2010-11 under section 143(3) of the IT Act. The revenue contested the addition of 12.5% on alleged bogus purchases, which the AO initially considered at 100%. The AO based this addition on information from the Maharashtra Sales Tax Department regarding purchases from purportedly non-genuine suppliers. Despite the assessee providing some details, the AO deemed the suppliers non-genuine, rejecting the books of accounts and adding the entire amount of the suspected purchases to the assessee's income.

The CIT(A) found the purchases not bogus as the suppliers were registered dealers, suggesting that the assessee may have avoided taxes on these purchases. Consequently, the CIT(A) upheld the addition of 12.5% on the alleged bogus purchases, resulting in an addition of ?7,47,781. The assessee, however, filed a cross objection against this decision.

Upon review, the tribunal noted that the assessee was engaged in the manufacturing and trading of metals. The AO's addition was based on purchases from suppliers flagged by the Sales Tax Department. The CIT(A) opined that the purchases were not bogus but potentially involved underreporting income by dealing with unregistered dealers. The CIT(A) considered the extensive documentation provided by the assessee, including bills, invoices, bank statements, and confirmations from suppliers. Considering the profit rate declared by the assessee and relevant judicial precedents, the tribunal modified the lower authorities' decision. It directed the AO to limit the addition to 10% of the alleged bogus purchases, contrary to the 12.5% upheld by the CIT(A).

Consequently, the tribunal dismissed the revenue's appeal while partially allowing the assessee's cross objection. The decision was pronounced on October 9, 2017.