2017 (12) TMI 1796 - AT - Income Tax

Estimation of income - bogus purchases - restriction of addition on account of bogus purchases to the tune of 7.5% - HELD THAT - We find that the assessee undoubtedly has availed hawala entries from the hawala operators. The explanation offered by the assessee did not find favour of the assessing officer and hence the AO added a sum of 51, 49, 820/- to the total income u/s 69C as peak credit on the basis of undisclosed cash which were treated as bogus purchase. The CIT(A) partly sustained the addition at 7.5% of the total bogus purchases. CIT(A) while restricting the addition of 7.5% of the total bogus purchases followed its predecessor s order. We also find that the co-ordinate benches of the Tribunal have been taking a consistent view under same facts that some percentage addition ranging from 5% to 12.50% or a reasonable percentage of the bogus purchase should be made towards savings which the assessee may have made by purchasing the material from gray market thereby saving VAT and other incidental taxes. Therefore we are of the opinion that the ld.CIT(A) has taken a reasoned and cogent view in the assessee s case by applying 7.50% of the bogus purchases and therefore we find no reason to interfere in the same. Accordingly we affirm the order of CIT(A) by dismissing the appeal of the assessee.

Summary

Issues:
Challenge to restriction of net addition on account of bogus purchases to 7.5% of total purchases.

Analysis:
1. The appeal was filed by the assessee challenging the order passed by the ld.CIT(A)-30, Mumbai regarding the restriction of net addition to 7.50% of purchases from unproven parties. Neither the assessee nor its representative appeared before the Tribunal, leading to an ex-parte disposal of the appeal after hearing the ld. DR.

2. The main issue raised by the revenue was against the limitation of addition concerning bogus purchases to 7.5% of the alleged total purchases that were not proven genuine.

3. The facts of the case revealed that the assessee declared income of ?28,38,950/- and was engaged in the business of ferrous and non-ferrous metals. The AO issued notices to parties from whom purchases were made, but one party was identified as a hawala dealer. The AO added ?51,49,820/- to the total income under section 69C due to undisclosed cash used in such purchases. The ld.AR contended that payments were made through banking channels, and books were duly audited, but the AO did not accept the explanation.

4. The CIT(A) partly allowed the appeal, sustaining the addition at 7.5% of the total bogus purchases. The Tribunal found that the assessee availed hawala entries, and while restricting the addition to 7.5%, the CIT(A) followed precedent. The Tribunal noted that consistent views were taken by co-ordinate benches that some percentage addition should be made towards savings from purchasing material from the gray market. Therefore, the Tribunal affirmed the CIT(A)'s decision, dismissing the appeal.

5. The Tribunal dismissed the appeal of the assessee, upholding the CIT(A)'s order. The decision was pronounced on 7th Dec, 2017.