2018 (11) TMI 1905 - AT - Income Tax

Estimation of income - Bogus purchases - HELD THAT - The assessee has produced copies of purchase bills and also filed payment proof to prove that payment for the said purchases have been made through proper banking channels. Under these circumstances, the only inference that could be drawn towards purchases from the said parties are are not totally bogus, but the assessee could not substantiate with necessary evidence. Under these circumstances, various Courts and Tribunals have taken a consistent view that when the purchases are considered as bogus, only profit element embedded in those purchases could be added as income of the assessee, but not total purchases from the said parties. The co-ordinate bench of ITAT, Mumbai in a number of decisions, by following the judgement of Hon ble Gujarat High Court in the case of Simit P Sheth 2013 (10) TMI 1028 - GUJARAT HIGH COURT has directed the AO to sustain addition to the extent of 12.5% of bogus purchases. In this case, facts are identical to the facts which have already been considered by the co-ordinate bench in a number of cases. Therefore, consistent with the view taken by the co-ordinate bench, we direct the AO to sustain addition to the extent of 12.5% of alleged bogus purchases. - Decided partly in favour of assessee.

Summary

Issues:
1. Validity of reassessment proceeding under section 147
2. Disallowance of purchases from suspicious hawala dealers

Analysis:

Issue 1: Validity of reassessment proceeding under section 147
The appellant challenged the reassessment proceeding initiated under section 147 by the Assessing Officer (AO) as being based on wrong facts and unlawful. The case involved the reopening of assessment for the assessment year 2009-10 due to alleged escaped income through accommodation entries from suspicious dealers. The AO made additions to the income based on purported purchases from specific parties, claiming lack of necessary evidence. The appellant contended that the reassessment was unjustified. The CIT(A) upheld the reassessment, emphasizing the duty of the assessee to provide complete details to prove the genuineness of purchases. The appellant's argument was that all necessary evidence, including purchase bills and payment proofs, had been submitted. However, the AO relied on information from the Sales-tax department without adequately considering the evidence provided by the appellant.

Issue 2: Disallowance of purchases from suspicious hawala dealers
The core issue revolved around the disallowance of purchases amounting to Rs. 15,89,604 from specific dealers labeled as suspicious hawala operators. The AO contended that the purchases were non-genuine due to lack of substantiating evidence beyond purchase bills and payment proofs. The CIT(A) supported the AO's decision, highlighting the failure of the appellant to provide conclusive evidence of the legitimacy of the purchases. The appellant argued that all necessary details had been furnished, and payments were made through proper banking channels. The Tribunal acknowledged the suspicious nature of the purchases but directed the AO to sustain the addition to the extent of 12.5% of the alleged bogus purchases, following precedents and the principle that only the profit element embedded in such transactions should be added to the income, not the total purchase amount.

In conclusion, the Tribunal partially allowed the appeal, upholding the addition to the extent of 12.5% of the alleged bogus purchases. The decision highlighted the importance of providing comprehensive evidence to substantiate transactions and the application of consistent judicial precedents in determining additions based on suspicious dealings.