2017 (12) TMI 1797 - AT - Income Tax

Estimation of income - Bogus purchases - HELD THAT - When sales are not doubted, 100% disallowance for bogus purchase cannot be done. The rationale being no sales is possible without actual purchases. This proposition is supported from the Hon'ble jurisdictional High Court decision in the case of Nikunj Eximp Enterprises 2014 (7) TMI 559 - BOMBAY HIGH COURT . The facts of the present case indicate that assessee has made purchase from the grey market. Making purchases through the grey market gives the assessee savings on account of non-payment of tax and others at the expense of the exchequer. In such situation, in my considered opinion, on the facts and in circumstances of the case, 12.5% disallowance out of the bogus purchases meets the end of justice. This proposition draws support from the Hon ble Gujarat High Court decision in the case of CIT vs Simit P. Sheth 2013 (10) TMI 1028 - GUJARAT HIGH COURT . Accordingly, direct that disallowance be limited to 12.5% of bogus purchase. Appeal filed by the assessee stands partly allowed.

Summary

Issues:
1. Ex-parte order u/s. 144 by CIT(A)
2. Addition of ?28,47,360 as bogus purchases under section 69C
3. Credibility of information, non-existent suppliers, and genuineness of purchases

Issue 1: Ex-parte order u/s. 144 by CIT(A)
The appellant challenged the ex-parte order passed by the CIT(A) under section 144, contending that proper opportunity was not provided. The appellant argued that the reasons for the ex-parte order were incorrect and contrary to the Income Tax Act and rules. However, the ITAT found that the assessing officer had credible information about accommodation entry providers and bogus suppliers being used to obtain false bills, leading to the reopening of the assessment. The appellant failed to provide any confirmation from the parties involved, and the assessing officer's actions were deemed necessary in this context.

Issue 2: Addition of ?28,47,360 as bogus purchases under section 69C
The assessing officer made an addition of ?28,47,360 to the returned income, considering certain purchases as bogus under section 69C of the Income Tax Act. The appellant contested this addition, claiming the purchases were genuine. However, the ITAT noted that notices sent to the concerned parties were returned unserved, indicating the non-existence of these suppliers. The Sales Tax Department's inquiry also revealed these parties providing bogus accommodation entries, further supporting the assessing officer's decision to treat the purchases as bogus.

Issue 3: Credibility of information, non-existent suppliers, and genuineness of purchases
The ITAT emphasized that the appellant had obtained bogus purchase bills from non-existent parties, as evidenced by the failure to produce any confirmation or relevant parties during the proceedings. The assessing officer's actions were deemed justified based on the overwhelming evidence of the suppliers' non-existence. The ITAT cited relevant court decisions to support the conclusion that the purchases from such non-existent parties could not be considered genuine. However, considering that the sales were not doubted, a 12.5% disallowance out of the bogus purchases was deemed appropriate to meet the ends of justice, as supported by previous court judgments.

In conclusion, the ITAT partly allowed the appeal, limiting the disallowance to 12.5% of the bogus purchases, based on the specific circumstances and legal precedents cited during the proceedings.