2018 (12) TMI 1830 - AT - Income Tax

Estimation of income - Bogus purchases - HELD THAT - The assessee was in possession of primary purchase documents and was able to reconcile the quantitative details. At the same time, the stated purchases were under grave doubt since the assessee could not produce any of the party to confirm the transactions and the information received from investigation wing revealed that all the suppliers were engaged in carrying out only paper transactions without actual delivery of material. The complete onus to prove the purchases conclusively was on assessee, which has remained un-discharged. In such a scenario, the addition, which could be made, was to account for profit element embedded in these purchase transactions to factorize for profit element earned by assessee against possible purchase of material in the grey market and undue benefit of VAT against alleged bogus purchases, which lower authorities have rightly done. Considering GP rate of 10.59% already reflected by the assessee as well as VAT rate applicable to the goods being dealt with by the assessee, we find the estimation to be on the higher side and therefore, we restrict the same to 3% of alleged bogus purchases of ₹ 1,87,08,961/-. The same comes to ₹ 5,61,269/-. - AO is directed to re-compute the income of the assessee in terms of our above order.

Summary

Issues:
Appeal against order of Ld. Commissioner of Income-Tax (Appeals) for AY 2009-10 challenging validity of reassessment proceedings and addition of income based on alleged bogus purchases.

Analysis:
1. The appeal contested the order of the Ld. Commissioner of Income-Tax (Appeals) for AY 2009-10 on various grounds, including jurisdictional issues and procedural irregularities. The appellant argued that the original order by the Assessing Officer (AO) was flawed as it was based solely on allegations from the Sales Tax Department without independent assessment. The appellant claimed that the AO's decision lacked material evidence and violated principles of natural justice. The CIT(A) was accused of not considering the appellant's submissions and failing to adjudicate on the appeal grounds. The appellant sought cancellation or reversal of the order, alleging errors in law and facts.

2. During the relevant assessment year, the appellant, a resident firm engaged in trading activities, faced reassessment proceedings due to suspicious purchases from hawala dealers. The AO initiated reassessment based on information from the Investigation Wing, as parties involved denied transactions with the appellant. The appellant failed to produce suppliers to substantiate purchases, leading the AO to conclude that only paper bills were obtained without actual material delivery. The AO added income based on estimated profit from alleged bogus purchases, which the CIT(A) upheld. The appellant challenged these additions on legal and merit grounds.

3. The Tribunal found the reassessment proceedings valid as they were initiated within the statutory period, with the AO forming a prima facie belief of escaped income based on tangible information. The jurisdictional challenge raised by the appellant was dismissed. Regarding the quantum of additions, the Tribunal acknowledged the appellant's trading activities but noted the lack of conclusive proof for the disputed purchases. The Tribunal reduced the estimated profit element from alleged bogus purchases, considering the appellant's turnover, payment methods, and inability to produce suppliers. The AO's order was modified to reflect a lower addition based on a revised profit estimation.

4. In conclusion, the Tribunal partly allowed the appeal, modifying the AO's order to reduce the addition of income from alleged bogus purchases. The Tribunal directed the AO to recalculate the appellant's income in line with the revised profit estimation. The decision was pronounced in open court on 5th December 2018.