2017 (9) TMI 1903 - AT - Income Tax

Estimation of income - Bogus purchases - Information received from Sales tax department that certain parties (called hawala parties) are indulging in providing only accommodation bills without actually supplying the materials - AO estimated at 12.50% of the value of purchases - HELD THAT - There is merit in the inference drawn by the AO that the assessee could have purchased goods from the grey market and obtained the accommodation bills to account for them. In that case, the AO was justified in estimating the profit element involved in the impugned purchases. The assessee had declared G.P rate of 14.23% and 15.58% during the years relevant for AY 2009-10 and 2010-11 respepctively. During the year under consideration, the G.P rate has come down to 9.82%, a reduction of almost 6%. The turnover of the assessee has increased from ₹ 246 lakhs in the immediately preceding year to ₹ 426 lakhs. The increase in turnover may be one of the reasons for the fall in G.P, but another possibility is that the assessee might have inflated impugned purchases also. Hence there is no merit in the claim of the assessee. The tax authorities have estimated the profit that would have been made by the assessee on the value of alleged bogus purchases @ 12.50% and same is reasonable - Decided against assessee.

Summary

Issues:
Appeal against confirmation of addition for alleged bogus purchases.

Analysis:
The appeal was filed against the decision of the Ld CIT(A) confirming the addition related to alleged bogus purchases made by the assessee. The revenue examined details provided by the Sales tax department, which revealed that certain parties were involved in providing accommodation bills without actually supplying materials. The assessee had purchased goods from these parties, known as hawala parties, amounting to ?85,01,430 during the relevant year, leading to the reopening of the assessment by the AO.

Before the AO, the assessee submitted purchase bills, bank statements, and ledger account copies. However, summons issued to the suppliers were returned unserved, and the assessee failed to produce the suppliers upon request. The AO concluded that the assessee had purchased goods from the grey market and used accommodation bills to account for them. The AO estimated a profit element of 12.50% of the value of purchases based on a decision of the Hon’ble Gujarat High Court, which was upheld by the Ld CIT(A) and challenged by the assessee in the appeal.

The Ld A.R argued that the purchases were genuine, supported by purchase bills and payment details. The assessee also demonstrated the sale of goods and highlighted that most goods were subject to a VAT rate of 5%. The Ld D.R contended that the assessee should have earned a profit on the purchases, justifying the adoption of the G.P rate by the Ld CIT(A) for the addition.

Considering the submissions and evidence, the tribunal noted that the suppliers had admitted to providing only accommodation entries and failed to respond to summons. The tribunal found merit in the AO's inference that the purchases might have been from the grey market with accommodation bills. The tribunal observed a decrease in the G.P rate from previous years, suspecting possible inflation of purchases due to the significant increase in turnover. Consequently, the tribunal upheld the profit estimation of 12.50% by the tax authorities as reasonable under the circumstances, dismissing the appeal filed by the assessee.

In conclusion, the tribunal upheld the decision of the Ld CIT(A) confirming the addition for alleged bogus purchases, emphasizing the failure to produce genuine suppliers and the suspicious decrease in G.P rate, leading to the dismissal of the appeal.