2014 (2) TMI 1344 - HC - Income Tax

Bogus purchases - ITAT restricting the addition made by AO to 5% of the total bogus purchases - Held that - In the present case, though it may appear that the purchases have been shown to have been made through M/s. Vishal Traders but supplied by some other agency, in absence of other additional facts noted by this Court in case of Sanjay Oilcake Industries 2008 (3) TMI 323 - GUJARAT HIGH COURT gross ad hoc addition of 25% may not be justified. In the present case, the assessee could produce before the authorities the precise rate at which the purchases were made from M/s. Vishal Traders and other suppliers to demonstrate that the purchases made on the same day carried the same price. This would substantially eliminate the angle of the purchase price being artificially inflated. Additionally, the Tribunal also noted other parameters such as higher net and gross profit rates of the present year compared to the earlier years of the recent past. No question of law arises.

Summary

Issues:
1. Addition of Rs. 61.67 lakhs made by the Assessing Officer in the case of the respondent-assessee for the A.Y 2007-08.
2. Whether provisions of Section 40A (3) of the Act are attracted to the cash purchases of Rs. 61,67,077/= claimed to have been made from other parties.

Analysis:
1. The primary issue in this case revolved around the addition of Rs. 61.67 lakhs made by the Assessing Officer in the respondent-assessee's case for the assessment year 2007-08. The Assessing Officer deemed the purchases made from M/s. Vishal Traders as bogus based on the withdrawal of cash shortly after cheque deposits. Consequently, the entire amount was added to the assessee's income. The assessee contended that detailed records of goods received were available, truck numbers were mentioned, and rates matched purchases from other suppliers. It was also argued that Mr. Madanlal Chandak controlled M/s. Vishal Traders and purchases were made through brokers, not directly. The CIT [A] granted partial relief, taxing 25% of the amount based on a previous court decision.

2. The second issue questioned whether Section 40A (3) of the Act applied to cash purchases of Rs. 61,67,077/= from other parties. Both the revenue and assessee appealed to the Tribunal, with the revenue claiming all purchases were bogus and should be added to the income. The Tribunal, however, noted better profit rates, proper stock maintenance, and internal contradictions in statements by M/s. Vishal Traders' representative. Consequently, the addition was reduced to 5% of the amount. The High Court upheld the Tribunal's decision, stating that the purchases were supported by material evidence, unlike the situation in a previous case where parties were untraceable, justifying a 25% addition.

In conclusion, the High Court dismissed the tax appeal, emphasizing that the Tribunal's decision was based on substantial evidence and reasoning. The Court found no error in the Tribunal's assessment, as the purchases were supported by documentation, rates matched purchases from other suppliers, and profit rates were better than previous years. The Court differentiated this case from a previous judgment where untraceable parties led to a higher addition, supporting the Tribunal's decision to reduce the addition to 5% based on the available evidence and circumstances.