2019 (10) TMI 1424 - AT - Income Tax

Estimation of income - Bogus purchases - parties were declared bogus by the Maharashtra Vat Department as providing Hawala entries - CIT(A) confirmed the order of the AO by observing that the onus lies on the assessee to justify the expenses incurred by him by producing the parties besides the documentary evidence - HELD THAT - The assessee has claimed to have made sales against such purchases which have been admitted by the Revenue. As such in our considered view, such sales cannot be executed without having the corresponding purchases. There was no defect pointed out by the authorities below insofar the sales made against such purchases. Moreover, there is also no allegation regarding the genuineness of the books of accounts which were duly audited under the Income Tax Act. Before parting we cannot ignore the practice prevailing in the business industries to purchase the goods from the grey market and subsequently justify such purchases by obtaining a purchase bill from the parties engaged in providing accommodation entries. It is because the assessee in the present case has claimed to have purchased the goods from the parties not having valid VAT/CST registration certificate though he is claiming to have purchased goods from the registered party. Moreover, there was no submission from the side of the assessee against the finding of the Maharashtra Sales Tax Department wherein it was alleged that the parties are not genuine. In view of the above, we can presume that the actual purchases were made by the assessee from the grey market but shown in the name of impugned parties. Assessee has already declared the GP in its books of accounts by recording the sales and the corresponding purchases. But to prevent the possible leakage of the Revenue, as the purchases from the local/grey market is normally cheaper, we are inclined to make the ad hoc addition at the rate of 5% of such purchases in order to meet the end of justice and to stop the ongoing dispute. In holding so, we find support and guidance from the judgment of ITAT Ahmedabad in case of ITO vs. Sun steel 2004 (6) TMI 236 - ITAT AHMEDABAD-B We direct the AO to make the ad-hoc addition on such purchases as discussed above. Hence the ground of appeal of the assessee is partly allowed.

Summary

Issues Involved:
1. Bogus Purchases
2. Reopening of Assessment under Section 147 of the Income Tax Act

Issue-wise Detailed Analysis:

1. Bogus Purchases:

The primary issue in this case revolves around the purchases made by the assessee amounting to ?55,61,085, which were treated as bogus by the Assessing Officer (AO). The assessee, engaged in trading ferrous and non-ferrous metals, showed purchases from six parties. However, during the assessment, the AO observed discrepancies, including information from the Maharashtra Sales Tax Department indicating that the purchases were bogus. Notices issued under section 133(6) to the parties from whom purchases were made remained unserved or unanswered, and there was a discrepancy in the VAT paid.

The assessee contended that all purchases were supported by invoices, delivery challans, and payments made through account payee cheques. The assessee also argued that sales corresponding to these purchases were recorded, and without genuine purchases, such sales could not have been made. However, the AO disagreed, noting that the purchases were made from non-existent parties and payments were made in the subsequent year.

The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, emphasizing that the onus was on the assessee to prove the genuineness of the purchases by producing the parties involved. The CIT(A) treated the entire amount as bogus purchases.

Upon appeal, the Income Tax Appellate Tribunal (ITAT) noted that the assessee had shown sales against the purchases, which were not disputed by the Revenue. The ITAT acknowledged the possibility of the assessee purchasing goods from the grey market and obtaining accommodation bills to justify such purchases. To prevent revenue leakage, the ITAT directed an ad-hoc addition at the rate of 5% of the purchases, following the precedent set in the case of ITO vs. Sun Steel.

2. Reopening of Assessment under Section 147 of the Income Tax Act:

The assessee raised an additional ground of appeal, challenging the reopening of the assessment under section 147. However, the assessee did not press this ground during the hearing, and it was dismissed as not pressed.

Conclusion:

The ITAT partly allowed the appeal, directing the AO to make an ad-hoc addition of 5% on the purchases to meet the ends of justice and prevent revenue leakage. The additional ground of appeal regarding the reopening of the assessment was dismissed as not pressed. The order was pronounced in court on 22/10/2019 at Ahmedabad.