2018 (8) TMI 1915 - AT - Income Tax

Bogus purchases - AO making an addition on account of unexplained purchase u/s 69C by calculating peak credit and by treating genuine purchase as accommodation entry - addition so made was reduced by CIT(A) to the extent of 3% of the alleged bogus purchases - HELD THAT - In the instant case, assessee has precisely asked for cross examination and the copy of the statement which was not supplied either by AO or by CIT(A) nor any corroborative evidence was brought on record to prove that assessee has purchased goods from grey market. Keeping in view the profit rate shown by the assessee at 7.17% in respect of goods exported, there is no justification for making further addition of 3%. It is also a matter of record that assessee has filed ledger account with confirmation of the parties from whom purchases were made. Stock Register and quantative details of the goods purchased and exported was also filed before the lower authorities, wherein no discrepancy was pointed out. Keeping in view totality of facts and circumstances of the case vis- -vis profit declared by the assessee at 7.17%, no further addition is warranted. - Decided against revenue

Summary

Issues:
Cross appeals on addition made on account of alleged bogus purchases.

Analysis:
1. The case involved cross appeals by the assessee and Revenue against the order of CIT(A)-10, Mumbai for A.Y. 2011-12 regarding addition made on alleged bogus purchases.
2. The AO observed that the assessee company had taken purchase bills from 11 concerns operated by a specific group. The assessee denied any business transactions with the mentioned group, but the AO made additions under section 69C of the IT Act.
3. The assessee contended before the CIT(A) that genuine purchases were wrongly treated as accommodation entries. They argued that payments were made through cross-account payee cheques, and no evidence supported the purchases were from grey market.
4. The CIT(A) rejected the peak credit theory but still made a 3% addition to alleged bogus purchases. The assessee provided various details to prove the genuineness of purchase transactions.
5. The Tribunal considered the contentions, judicial pronouncements, and documents submitted by the assessee. It noted the lack of opportunity for cross-examination and absence of corroborative evidence for the alleged bogus purchases.
6. The AO's addition under section 69C was based on peak credit theory, which was not justified as payments were made through cheques and suppliers confirmed transactions. The CIT(A) also did not accept the addition but limited it to 3% of alleged bogus purchases.
7. The assessee submitted several documents to prove the genuineness of purchase transactions, including account confirmations, financial statements, and invoices. The profit rate declared by the assessee was reasonable and in line with industry standards.
8. Citing legal precedents, the Tribunal emphasized the importance of providing opportunity for cross-examination and supplying material used against the assessee. In this case, the denial of cross-examination and lack of evidence for grey market purchases rendered the addition unwarranted.
9. Considering all facts and circumstances, the Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal, concluding that no further addition was justified based on the profit rate and evidence provided.

This detailed analysis of the judgment highlights the arguments, findings, and legal principles applied in the case of alleged bogus purchases, leading to the dismissal of the Revenue's appeal and the allowance of the assessee's appeal.