2018 (5) TMI 2085 - AT - Income Tax

Reopening of assessment u/s 147 - Bogus purchases - HELD THAT - Validity of reassessment proceedings as raised by the assessee is concerned we find no merit in the same since the return was processed u/s 143(1) and the new tangible material came into the possession of Ld. AO in the shape of information from concerned authorities which pointed at escapement of income and therefore the jurisdiction was validly assumed by Ld. AO. Quantum of additions - There could be no sale without purchase /consumption of material since the assessee was engaged as manufacturer of sheet metal components. The sales turnover achieved by the assessee has not been disputed by the revenue and the payments were through banking channels. The assessee was in possession of primary purchases documents. At the same time the assessee could not conclusively substantiate the purchases made by him and failed to produce any of the party to confirm the transactions. All these factors cast a serious doubt on assessee s claim. Therefore in such a situation the addition which could be made was to account for profit element embedded in these purchase transactions to factorize for profit earned by assessee against possible purchase of material in the grey market and undue benefit of VAT against such bogus purchases which Ld. CIT(A) has rightly done - we dismiss the assessee s appeal.

Summary

Issues:
1. Validity of reassessment proceedings.
2. Quantum of additions on account of alleged bogus purchases.

Validity of reassessment proceedings:
The appeal contesting the order of the Ld. Commissioner of Income-Tax (Appeals) for Assessment Year 2011-12 challenges certain additions due to alleged bogus purchases. The reassessment was initiated based on information from the Sales Tax Department, Maharashtra, indicating the assessee's involvement in bogus purchase bills. Despite the assessee's submission of ledger extracts and bank statements, the suppliers failed to confirm the transactions. The Ld. AO treated the purchases as bogus, resulting in estimated additions of Rs. 8.52 Lacs. The reassessment proceedings were upheld by the Ld. CIT(A) who reduced the additions to 12.5%. The jurisdiction of the Ld. AO was deemed valid due to new material indicating income escapement.

Quantum of additions on alleged bogus purchases:
The assessee, engaged in manufacturing sheet metal components, could not conclusively prove the genuineness of the purchases. Although the sales turnover was undisputed, the inability to substantiate the purchases and failure to confirm transactions raised doubts. The Ld. CIT(A) rightly factored in the profit element embedded in the purchase transactions to adjust for potential profit from grey market material purchases and VAT benefits from bogus purchases. Consequently, the appeal was dismissed, affirming the additions made by the authorities.

In conclusion, the reassessment proceedings were deemed valid, and the additions on alleged bogus purchases were upheld due to the lack of conclusive evidence supporting the genuineness of the transactions. The dismissal of the appeal was based on the consideration of profit elements in the purchases and the failure to substantiate the transactions adequately.