2017 (6) TMI 1370 - AT - Income Tax

Estimation of income - Bogus purchases - assessee has purchased materials from the parties so identified by the Sales tax department - CIT(A) restricted the addition to 8% - HELD THAT - Decision taken by Ld CIT(A) does not call for any interference. In the instant case the AO has not proved that the impugned purchases have not been sold. As submitted by Ld A.R an item cannot be sold without purchasing the same. Hence there is no reason to disallow entire amount of purchases. Accordingly in the facts and circumstances of the case Ld CIT(A) was justified in restricting the disallowance to 8% of the alleged bogus purchases. Accordingly I uphold the order passed by Ld CIT(A) on this issue. Appeal filed by the revenue is dismissed.

Summary

Issues:
Appeal against partial relief granted by Ld CIT(A) on addition relating to alleged bogus purchases.

Analysis:
The appeal filed by the revenue was directed against the order of Ld CIT(A) granting partial relief to the assessee in relation to the addition concerning alleged bogus purchases. The AO disallowed the entire amount of purchases made by the assessee based on information received from the sales tax department regarding dealers providing accommodation bills without supplying materials. However, Ld CIT(A) restricted the addition to 8% of the identified amount. The revenue challenged this decision before the Tribunal.

The Ld CIT(A) observed that the Sales Tax Department had conducted inquiries against dealers involved in bogus purchases/sales, forwarding information to the Income Tax Department. The AO found the assessee had inflated purchases from identified dealers but failed to establish the genuineness of the disputed purchases. The AO disallowed part of the purchases without questioning the sales figures or providing evidence of sales suppression. The appellant had made payments through banking channels, ensuring traceability, and cited precedents where payments by cheques were deemed genuine.

Referring to legal precedents, the Ld CIT(A) emphasized that if payments were made through banking channels and recorded in the books, no adverse inference should be drawn. The Ld CIT(A) also highlighted judgments stating that non-appearance of suppliers did not prove purchases were not made, and if sales were not doubted, purchases should be questioned only to the extent of gross profit. Considering these factors, the Ld CIT(A) upheld a profit element of 8% on the disputed purchases, confirming an addition of Rs. 3,16,928 out of Rs. 39,61,591.

During the appeal, the Ld D.R argued that the assessee failed to prove the genuineness of purchases, while the Ld A.R contended that sales could not have occurred without corresponding purchases. After hearing the arguments, the Tribunal found that the AO did not establish that the purchases were not sold, as items cannot be sold without being purchased. Therefore, the Tribunal upheld the Ld CIT(A)'s decision to restrict the disallowance to 8% of the alleged bogus purchases, concluding that the entire amount should not have been disallowed.

In conclusion, the Tribunal dismissed the revenue's appeal, upholding the Ld CIT(A)'s order on the issue of alleged bogus purchases.