2017 (8) TMI 1658 - AT - Income Tax

Estimation of income - bogus purchases - HELD THAT - The assessee has failed to provide trail to goods purchased. Where on the one side the Department has raised serious doubt over the purchase of goods, the sale of goods have not been disputed. There cannot be sale unless there has been in flow of goods in the form of purchase - the entire amount of bogus purchases cannot be added. There has to be some estimation of GP. The assessee has furnished a chart giving the details of sale, purchase, gross profit, GP ratio and NP ratio for assessment years 2007-08 to 2011-12. Reliance cannot be placed on the figures furnished by the assessee as the purchases in the three assessment years are under the shadow of doubt. As decided in M/s. Chhabi Electricals Pvt. Ltd. Vs. Deputy Commissioner of Income Tax 2017 (6) TMI 514 - ITAT PUNE estimated addition @ 10% of the alleged hawala purchases. In the aforesaid bunch of appeals the additions were made on the basis of information received from Sales Tax Department. The purchases made by assessee from hawala dealers were held to be bogus and Assessing Officer made addition of the entire such purchases. In first appeal, the Commissioner of Income Tax (Appeals) granted partial relief to the assessee. Thereafter, the assessee carried the matter in second appeal before the Tribunal. The Tribunal categorized the appeals on the basis of facts and thereafter estimated the addition @ 10%. We are of considered view that addition on account of bogus purchases if estimated @ 10% of such purchases, would meet the ends of justice. We hold and direct accordingly. Thus, all the three appeals of the assessee are partly allowed in aforesaid terms.

Summary

Issues involved:
Assessment of entire bogus purchases made by the assessee from hawala dealers in the assessment years 2009-10, 2010-11, and 2011-12.

Detailed Analysis:
1. The assessee, engaged in steel trading, faced reassessment proceedings due to purchases from hawala dealers. The Assessing Officer invoked section 144 of the Income Tax Act, 1961, as the assessee did not cooperate. The entire bogus purchases were added by the Assessing Officer, leading to appeals before the Commissioner of Income Tax (Appeals) and subsequently the Tribunal.
2. The appellant argued that the addition of entire purchases from hawala dealers was unjustified. They suggested that any addition should be based on the GP ratio, which had shown a consistent increase over the years. The appellant contested the re-opening of assessment under section 147 and provided written submissions highlighting various legal points and cases in support of their position.
3. The Department defended the Commissioner's findings, emphasizing the lack of cooperation from the assessee in providing necessary details and documentation related to the purchases. The Department argued that without proper documentation, the addition of entire bogus purchases was warranted.
4. The Tribunal noted that while doubts existed regarding the purchases from hawala dealers, the sales were not disputed. Considering this, the Tribunal opined that the entire amount of bogus purchases could not be added and that an estimation of GP was necessary. Referring to a previous case, the Tribunal decided to estimate the addition at 10% of the alleged hawala purchases, aligning with the principles of justice.
5. Ultimately, the Tribunal partly allowed the appeals, directing the addition on account of bogus purchases to be estimated at 10% of such purchases for all three assessment years. The decision was based on a holistic view of the facts and in line with the precedent set in a similar case.

This comprehensive analysis outlines the key arguments, legal considerations, and the final decision made by the Tribunal regarding the assessment of bogus purchases from hawala dealers for the mentioned assessment years.