2018 (1) TMI 1317 - AT - Income Tax

Addition of bogus purchases - Held that - AO has failed to bring on record any evidence to justify the addition whereas the CIT(A) has taken a reasonable view of the matter. But when the issue of bogus purchases is involved some addition has to be made thereby accepting the alternative prayer of the ld AR. In the present case the AO has completely failed in carrying out any investigation and therefore only addition based upon some small percentage would be justified. Considering the facts of the case in totality, we are of the opinion that it would be reasonable and fair to make an addition of 2.5% of the bogus purchases to the income of the assessee. Accordingly, we direct the AO to add 2.5% of the bogus purchases by setting aside the order of the CIT(A).

Summary

Issues:
- Deletion of addition by CIT(A) on account of bogus purchases from M/s. Kinjal Industrial Corporation.

Analysis:
1. The Revenue filed appeals against the CIT(A)'s order for assessment years 2004-05 to 2009-10, specifically challenging the deletion of an addition of Rs. 1,77,41,902/- made by the AO on account of bogus purchases from M/s. Kinjal Industrial Corporation for A.Y. 2004-05.

2. The AO initiated reassessment proceedings based on information received regarding bogus purchase bills. The assessee, a dealer in iron and steel items, submitted details and claimed purchases from M/s. Kinjal Industrial Corporation were genuine. However, the AO added the entire purchase amount to the income, relying on the admission of M/s. Kinjal Industrial Corporation's principal officer regarding accommodation bills.

3. The CIT(A) allowed the appeal, stating the appellant provided necessary details, but the AO failed to conduct independent verification or enquiry with the concerned parties. The CIT(A) found the addition unjustified, as the appellant substantiated the transactions' genuineness, leading to the deletion of the addition.

4. The Revenue contended that the CIT(A) erred in deleting the addition, emphasizing the admission by M/s. Kinjal Industrial Corporation's principal officer and the lack of production of parties by the assessee. The Revenue argued for upholding the AO's order.

5. The appellant argued that all relevant records were submitted to the AO, who failed to verify them or issue notices to the parties involved. The appellant asserted that the onus was on the AO to prove the purchases were non-genuine, which the AO failed to do. The appellant requested upholding the CIT(A)'s decision or alternatively suggested a 1% addition to the income.

6. The Tribunal noted that the AO did not conduct further investigation despite receiving details from the assessee. The CIT(A)'s decision was considered reasonable, but it was deemed necessary to make some addition due to the issue of bogus purchases. Consequently, the Tribunal directed an addition of 2.5% of the bogus purchases to the assessee's income, setting aside the CIT(A)'s order.

7. The Tribunal's decision in ITA No. 3243/Mum/2012 was applied mutatis mutandis to other appeals by the Revenue, resulting in partial allowance of all appeals. The addition of 2.5% of the bogus purchases was directed for each appeal, emphasizing the importance of conducting thorough investigations in such cases.