2019 (3) TMI 1874 - AT - Income Tax

Estimation of income - Bogus purchases - HELD THAT - Assuming that the entire purchases from Rajasthan Metals was bogus, then it would be commercially impossible for the assessee to sell ₹ 5.54 crores of goods. Moreover, sales effected by the assessee has been accepted by the Sales Tax Department. The assessee has given complete quantitative details in the form of stock register of raw material as S.S. Patti which is exhibited at page E-3/81 to E-3/109 of the paper book. A perusal of the same clearly reveals that the raw materials, in fact, entered the business of the assessee which were used for making final product and accordingly, sales were executed by the assessee. It appears that the assessee must have purchased the raw material from the grey market and must have taken supporting purchase bills from the accommodation entry provider which means that raw material were, in fact, purchased and there was movement of the same which enables the assessee to produce its final product. In our considered opinion, over and above the additions sustained by the ld. CIT(A), the assessee must have incurred some expenditure in procuring accommodation bills which we estimate at 5% of the total purchases from Rajasthan metals which is ₹ 1.45 crores which means that the assessee must have incurred expenditure of ₹ 7 lakhs for procuring accommodation bills. Modifying the findings of the ld. CIT(A), we direct the Assessing Officer to restrict the addition to ₹ 13.43 lakhs. - Decided partly in favour of revenue allowed.

Summary

Issues Involved:
1. Restriction of addition on account of bogus purchases.
2. Ignorance of bogus purchases from M/s Rajasthan Metals.

Issue-wise Detailed Analysis:

1. Restriction of Addition on Account of Bogus Purchases:
The Revenue's primary grievance was that the CIT(A) erred in restricting the addition to ?6,43,466 out of the total addition of ?71,95,000 on account of bogus purchases. The case originated from a search action revealing that certain individuals were providing accommodation entries in the form of bogus sales bills. The Assessing Officer (AO) identified that M/s Bansal Strips Pvt. Ltd had transactions amounting to ?71.95 lakhs with firms involved in providing such entries. The assessee failed to furnish the required confirmations, leading the AO to treat the purchases as bogus and add the amount to the assessee's total income.

The CIT(A) noted that the AO accepted the genuineness of purchases from the same supplier for the balance amount, indicating inconsistency. The CIT(A) further observed that the assessee's sales of ?5.54 crores could not have been effected without purchases. The CIT(A) concluded that treating the entire ?1.45 crores as bogus would result in an unrealistic gross profit rate. Instead, the CIT(A) applied a gross profit rate of 5%, resulting in an addition of ?6,43,466, and directed the AO to restrict the addition accordingly.

2. Ignorance of Bogus Purchases from M/s Rajasthan Metals:
The Revenue contended that the CIT(A) ignored the bogus purchases of ?1,45,23,400 from M/s Rajasthan Metals, as specified in the remand report. The CIT(A) had considered the remand report and the assessee's submissions, concluding that the total purchases from Rajasthan Metals were ?1.45 crores, constituting 26% of the turnover. The CIT(A) found that without purchases, the sales could not have been made, and treating the entire amount as bogus was not justified. The CIT(A) estimated the income by applying a gross profit rate of 5%, aligning with the industry standards and the assessee's trading results in subsequent years.

Tribunal's Findings:
The Tribunal reviewed the submissions and the facts of the case. It acknowledged that the assessee made total purchases from Rajasthan Metals amounting to ?1.45 crores, which was 26% of the total turnover. The Tribunal noted that assuming the entire purchases were bogus would make it commercially impossible for the assessee to achieve sales of ?5.54 crores. The Tribunal also considered the assessee's complete quantitative details, indicating that the raw materials entered the business and were used to produce the final product.

The Tribunal concluded that the assessee likely purchased raw materials from the grey market and obtained supporting purchase bills from accommodation entry providers. It estimated that the assessee incurred additional expenditure of 5% of the total purchases for procuring accommodation bills, amounting to ?7 lakhs. Therefore, the Tribunal modified the CIT(A)'s findings and directed the AO to restrict the addition to ?13.43 lakhs.

Conclusion:
The appeal of the revenue was partly allowed, with the Tribunal modifying the addition to ?13.43 lakhs, considering the expenditure incurred for procuring accommodation bills. The order was pronounced in the open court on 11.03.2019.