2019 (7) TMI 1564 - AT - Income Tax

Bogus purchases - G.P. rate on purchases - CIT(A) restricting the disallowance to 12% - HELD THAT - Assessee was a trader of fabrics. A.O. found three entities who were indulging in bogus billing activities. A.O. found that the purchases made by the assessee from these entities were bogus. This being a finding of fact, we have proceeded on such basis. Despite this, the question arises whether the Revenue is correct in contending that the entire purchase amount should be added by way of assessee's additional income or the assessee is correct in contending that such logic cannot be applied. The finding of the CIT(A) and the Tribunal would suggest that the department had not disputed the assessee's sales. There was no discrepancy between the purchases shown by the assessee and the sales declared. That being the position, the Tribunal was correct in coming to the conclusion that the purchases cannot be rejected without disturbing the sales in case of a trader. The Tribunal, therefore, correctly restricted the additions limited to the extent of bringing the G.P. rate on purchases at the same rate of other genuine purchases. No fault could be find with the estimation made by Ld. CIT(A), in this regard. Disallowance of depreciation - HELD THAT - FAA has erred in noting the factual matrix. The depreciation was disallowed as a matter of consequence since certain capital expenditure incurred by assessee in earlier AY 2009-10 was disallowed and depreciation was disallowed to the assessee in that year. Consequentially, depreciation was disallowed in this year also on the written down value as claimed by the assessee. Therefore, this issue was percolating from AY 2009-10. Therefore, by setting aside the directions of first appellate authority in this regard, we direct Ld. AO to compute the disallowance as per the final outcome of disallowance of capital expenditure in AY 2009-10. The assessee is directed to provide requisite information

Summary

Issues:
1. Disallowance of purchases from accommodation entry provider.
2. Genuineness of purchases and failure to prove transactions.
3. Disallowance of depreciation on plant & machinery.
4. Reopening of assessment proceedings without recorded reasons.

Analysis:
1. The appeal by Revenue contested the order of Ld. CIT(A) regarding the disallowance of purchases from accommodation entry provider concern amounting to ?81,76,272. The AO had deemed the purchases as bogus, leading to the question of whether the disallowance should be restricted to 12% without evidence of the actual sellers. The Hon'ble Apex Court precedent was cited, emphasizing that undisclosed income from bogus transactions should be added to total income. The Tribunal upheld the CIT(A)'s decision to restrict the disallowance to 12% based on the profit element in the transactions.

2. The assessee failed to substantiate the purchases of ?81.76 Lacs, which were deemed non-genuine by the AO. Despite possessing primary purchase documents and making payments through banking channels, the assessee could not prove the transactions' authenticity. The Tribunal agreed with the CIT(A) to account for the profit element in the purchases and upheld the addition of 12% of the alleged bogus purchases.

3. The disallowance of depreciation on plant & machinery was challenged due to the disallowance of capital expenditure in the previous assessment year. The Tribunal found that the depreciation disallowance was a consequence of the earlier disallowance and directed the AO to recompute the disallowance based on the final outcome of the previous year's disallowance.

4. The assessee raised concerns regarding the legality of the reassessment proceedings due to the alleged absence of recorded reasons. The Tribunal rejected the plea after the revenue provided the recorded reasons for reopening the assessment. The issue was adjudicated on merits, and the appeal was partly allowed for statistical purposes.

This comprehensive analysis covers the key issues raised in the legal judgment, detailing the arguments, decisions, and reasoning provided by the Tribunal in each instance.