2018 (8) TMI 1768 - AT - Income Tax

Addition of bogus purchases - HELD THAT - There were confirmation letters filed by the suppliers, copies of invoices for purchases as well as copies of bank statement all of which would indicate that the purchases were infact made. Merely because the suppliers have not appeared before the AO or the CIT(A), one cannot conclude that the purchases were not made by the assessee. Disallowance merely on the basis of suspicion because the sellers and the canvassing agents have not been produced before them is not warranted - thus the order of the Tribunal is well a reasoned order taking into account all the facts before concluding that the purchases was not bogus - See NIKUNJ EXIMP ENTERPRISES PVT LTD. 2013 (1) TMI 88 - BOMBAY HIGH COURT and SIMIT P SHETH 2013 (10) TMI 1028 - GUJARAT HIGH COURT . The estimation of rate of profit return must necessarily vary with the nature of business and no uniform yardstick can be adopted - Disallowance to the extent of 12.5 percent is allowed Decided against the Revenue. - Decided in favour of assessee. Deduction from WIP in connection with non-genuineness of the claim of unsecured loan from 35 parties - HELD THAT - The amount was disallowed in A.Y. 2008-09 on the basis of disallowance in the A.Y. 2009-10 which was to the tune of ₹ 1,44,935/- related to 12 parties. Out of these 12 parties only two parties were carried forward from earlier year. Remaining ten parties were reflected in the A.Y.2009-10. The total interest of two parties on ₹ 50,000 was only ₹ 1,02,280/- instead of ₹ 63,41,202/- which was not related to relevant assessment year. CIT(A) calculated the interest on account of factual basis in the relevant assessment year. Nothing came into notice that the calculation is factually wrong, therefore, in the said circumstances, we are of the view that the CIT(A) has decided the matter of controversy judiciously and correctly which is not liable to be interfere with at this appellate stage.

Summary

Issues Involved:
1. Deletion of addition on account of bogus purchases.
2. Non-consideration of the inability to prove the genuineness of purchases.
3. Failure to appreciate the secondary nature of evidence provided.
4. Findings of the Assessing Officer regarding undisclosed income.
5. Sustaining the addition to only 20% of the bogus purchases.
6. Deduction from Work-in-Progress (WIP) instead of the entire amount claimed.

Detailed Analysis:

Issue Nos. 1 to 5:
The revenue challenged the deletion of the addition of ?4,51,839/- on account of bogus purchases. The Assessing Officer (AO) had raised the addition based on the non-genuineness of purchases from three parties: Ajay Stone, Raj Traders, and Riya Enterprises, totaling ?5,64,799/-. The CIT(A) restricted the addition to 20% of the bogus purchases, citing precedents from CIT Vs. Nikunj Eximp Enterprises Pvt. Ltd. and CIT Vs. Simit P. Sheth.

The CIT(A) observed that the AO's conclusion was based solely on the non-compliance of notices under Section 133(6) of the Income Tax Act, which could not be the sole basis for treating the purchases as bogus. The CIT(A) emphasized the need for further investigation and noted that the goods were used in the business, implying that purchases were made. The CIT(A) found that the purchases might have been over-invoiced or made from the grey market without proper documentation.

The CIT(A) relied on judicial pronouncements that suggest only the profit element embedded in such purchases should be taxed, not the entire purchase amount. Following this rationale, the CIT(A) disallowed 20% of the alleged bogus purchases, amounting to ?1,12,960/-, and deleted the remaining ?4,51,839/-.

The tribunal found no distinguishable material to deviate from the CIT(A)'s findings and upheld the decision, noting that the CIT(A) had acted judiciously and correctly.

Issue No. 6:
The revenue contested the deduction of ?1,02,280/- from WIP instead of ?63,41,202/- concerning the non-genuineness of unsecured loans from 35 parties. The CIT(A) had remanded the matter to the AO, who found that the disallowance in A.Y. 2008-09 was based on the disallowance in A.Y. 2009-10, amounting to ?1,44,935/- related to 12 parties. Out of these, only two parties were carried forward from the earlier year, with the remaining ten parties reflected in A.Y. 2009-10.

The CIT(A) directed the AO to reduce the interest component related to genuine loan parties, resulting in a deduction of ?1,02,280/- instead of ?63,41,202/-. The tribunal upheld the CIT(A)'s decision, finding no factual errors in the calculation and concluding that the CIT(A) had acted judiciously and correctly.

Conclusion:
The appeal of the revenue was dismissed, and the tribunal upheld the CIT(A)'s findings on both the deletion of the addition on account of bogus purchases and the deduction from WIP. The CIT(A)'s decisions were found to be judicious and correct, with no grounds for interference at the appellate stage.