2018 (2) TMI 1749 - AT - Income Tax

Addition of bogus purchases - AO disallowed 100% of said purchases which is reduced to 8% by the CIT(A) on the ground that the sales were accepted by the AO and therefore only percentage addition can be made depending upon the G.P. ratio declared by the assessee - Held that - The practice normally followed in such type of cases where bills are taken from hawala dealers, the assessee purchases goods from grey market thereby making some savings in the form of VAT and other levies. The Coordinate Benches of the Tribunal have taken a view that some percentage addition can be made in order to bring to tax the savings that the assessee might have made by purchasing the goods from grey market. In the present case the CIT(A) has taken a very reasoned view of the matter by directing the AO to assess the income at 8% of the bogus purchases. No infirmity in the order of the CIT(A) which is speaking and reasoned one and therefore we uphold the same. - Appeal of assessee dismissed.

Summary

Issues:
Confirmation of 8% of alleged bogus purchases against 100% addition made by AO

Analysis:
The appeal was filed against the order of the CIT(A)-44, Mumbai for the assessment year 2011-12. The primary issue raised in this appeal was regarding the confirmation of ?3,20,060 (8% of alleged bogus purchases) as opposed to the 100% addition of ?40,00,753 made by the Assessing Officer (AO). The assessee, engaged in the business of builder and developer, provided a list of parties from whom purchases were made during the assessment proceedings. The AO issued a notice under Section 133(6) of the Income Tax Act, 1961 to these parties, but the notice sent to M/s. Global Trade Impex was returned unserved. Subsequently, it was discovered that this party was listed as a hawala dealer by the Sales Tax Department, Govt of Maharashtra. Despite the assessee's detailed submission, the AO added the entire amount of purchases from this party to the assessee's income, treating them as bogus. The CIT(A) partially allowed the appeal by sustaining the addition of 8% of the total bogus purchase amount, citing a decision of the Hon'ble Gujarat High Court. Dissatisfied with this decision, the assessee appealed to the Tribunal.

Upon hearing the submissions and examining the evidence, it was established that the assessee had availed bogus purchase bills amounting to ?40,00,753 from M/s. Global Trade Impex, a party listed as a hawala dealer. The AO disallowed 100% of these purchases, which was reduced to 8% by the CIT(A) based on the acceptance of sales by the AO. The Tribunal noted that in cases involving purchases from hawala dealers, some percentage addition can be made to account for savings made by purchasing goods from the grey market. The CIT(A)'s decision to assess the income at 8% of the bogus purchases was deemed reasonable and well-founded by the Tribunal. Consequently, the appeal filed by the assessee was dismissed, upholding the CIT(A)'s order.

In conclusion, the Tribunal upheld the CIT(A)'s decision to confirm 8% of the alleged bogus purchases, rejecting the assessee's appeal against the 100% addition made by the AO. The judgment emphasized the need to account for savings from purchasing goods from hawala dealers by making a percentage addition to the income, as determined based on the GP ratio declared by the assessee.