2019 (8) TMI 1436 - AT - Income Tax

Addition of alleged bogus purchases - Ld. first appellate authority reached a conclusion that the assessee miserably failed to lead evidences to substantiate the purchase transactions and therefore, the addition made by Ld. AO was to be confirmed - HELD THAT - During assessment proceedings, on the basis of material on record as supplied by DGIT (Investigation), the allegations were made by revenue against the assessee that the assessee procured bogus purchase bills from as many as 11 suppliers. Notices issued u/s 133(6) were issued to these suppliers to confirm the transactions, however, the same remained unserved in 10 cases. The field inquiries made by ward inspector established that none of the supplier was existing at the given addresses. The assessee was confronted with all those facts and show caused to produce the suppliers and adduce evidences in support of purchase transactions. However, the assessee could not produce even a single supplier to confirm the transactions and even the initial primary onus casted upon assessee, in this regard, remained undischarged. The assessee was in possession of primary purchase documents and the payments were through banking channels. The books of accounts were audited and the assessee maintained quantitative details of the items being dealt with by him. The sales turnover reflected by the assessee was not disturbed by the revenue. Therefore, in such a situation, the addition, which could be made, was to account for profit element embedded in these purchase transactions to factorize for profit earned by assessee against possible purchase of material in the grey market and undue benefit of VAT against such bogus purchases, which lower authorities has rightly done so. However, keeping in view the fact that the assessee was a trader and dealing in low-margin item like metal, which bears a lower VAT rate and also in view of the fact that the assessee had already reflected Gross Profit Rate of more than 4%, the estimation of 12.5% was on the higher side. We estimate the same @2% of alleged bogus purchases - The balance additions stand deleted. Rejection of books of accounts would require no adjudication in view of the fact that Ld. AO has not disturbed any of the financial parameters except to the extent of making addition on account of alleged bogus purchases - No fault could be found in the action of Ld. AO in reopening the case - levy of interest u/s 234, which being mandatory and consequential, would require no adjudication. Appeal allowed in part.

Summary

Issues:
1. Addition of estimated profit on alleged bogus purchases
2. Rejection of books of accounts under section 145(3)
3. Validity of assessment proceedings under section 147/148
4. Confirmation of order under section 143(3) rws 147
5. Charging of interest under section 234A, 234B, 234C, and 234D

Detailed Analysis:
1. The appeal involved the challenge of confirming an addition of estimated profit on alleged bogus purchases. The appellant contested the addition of ?8,349,395, which was calculated at a rate of 12.50% on the alleged bogus purchases of ?66,795,161. The appellant argued that the reasons provided for the estimation were insufficient. The Assessing Officer (AO) rejected the books of account under section 145(3) and made the addition based on the estimation. The appellant's defense was based on various legal precedents, but the AO's estimation was upheld by the first appellate authority. However, the tribunal modified the estimation to 2% of the alleged bogus purchases, resulting in a revised addition of ?1,335,903.

2. The rejection of books of accounts under section 145(3) was contested by the appellant. The AO invoked this provision due to the alleged bogus purchases, leading to the estimation of additional profit. The appellant argued that the adverse material was not properly confronted, citing legal cases to support their position. However, the tribunal found that the appellant failed to discharge the initial onus of substantiating the purchase transactions, leading to the rejection of this ground of appeal.

3. The validity of the assessment proceedings under section 147/148 was challenged by the appellant. The reassessment was initiated based on information regarding alleged bogus purchases, leading to the issuance of notices and further proceedings. The appellant contended that the initiation of proceedings was not based on valid reasons, but the tribunal dismissed this ground, stating that the AO had tangible material to reopen the case.

4. The confirmation of the order under section 143(3) rws 147 was also challenged by the appellant. The appellant argued that the order was illegal, lacked a proper hearing, and did not consider all relevant facts and evidence. However, the tribunal found no fault in the AO's actions, as the reassessment was deemed valid based on the material available.

5. The appellant disputed the charging of interest under sections 234A, 234B, 234C, and 234D. The tribunal noted that the levy of interest was mandatory and consequential, requiring no further adjudication. The ground contesting the interest charges was not upheld, as it was considered a standard procedure.

In conclusion, the tribunal partly allowed the appeal by modifying the estimation of profit on alleged bogus purchases and dismissing the other grounds of appeal related to the rejection of books of accounts, validity of assessment proceedings, confirmation of the order under section 143(3) rws 147, and the charging of interest under sections 234A, 234B, 234C, and 234D. The decision was pronounced on 29th August 2019.