2017 (1) TMI 1809 - AT - Income Tax

Bogus purchases - HELD THAT - It is noted in the assessment order that the notices sent to the parties were returned back by the Postal authorities with remark left and the Inspector also reported that the parties did not exist at the addresses provided by the assessee. CIT(A) has also found it fit to treat the purchases from the 10 parties as bogus. Though assessee has reiterated the submissions made before the lower authorities which has been reproduced by the CIT(A) yet we find that the same are merely generalised submissions and do not address the specific verification exercise carried out by the AO. Therefore insofar as the stand of CIT(A) to treat the purchases from the 10 parties as bogus is concerned the same is hereby affirmed. Estimation of income - CIT(A) sustaining the addition to the extent of 12.5% - CIT(A) who followed the judgments of Hon ble Gujarat High Court in the case of Bholanath Poly Fab Pvt. Ltd 2013 (10) TMI 933 - GUJARAT HIGH COURT and Simit P. Sheth 2013 (10) TMI 1028 - GUJARAT HIGH COURT to hold that assessee had indeed made purchases though not from the named parties but from other parties in grey market. For this reason the addition has been partly sustained to the extent of probable profit on the amount of such purchases. The approach adopted by the CIT(A) is expressly supported by the judgments of Hon ble Gujarat High Court having regard to the factual situation in the instant case. Therefore we affirm the ultimate decision of CIT(A) to sustain the addition to the extent of 12.5% of the amount of disputed purchases.

Summary

Issues:
Cross-appeals related to Assessment Years 2009-10 & 2010-11 involving common issues - Whether purchases made by the assessee from 10 parties are genuine or bogus, and the consequent addition to the total income.

Analysis:
Assessment Year 2009-10:
1. The cross-appeals filed by the assessee and the Revenue contested the order of CIT(A) regarding the addition of 12.5% of purchases amounting to ?88,53,059 as unexplained expenditure. The Assessing Officer treated the purchases from 10 parties as bogus, adding the entire amount to the total income.
2. The CIT(A) agreed that the purchases from the 10 parties were bogus but decided to assess only the profit element suppressed in the purchases, estimating it at 12.5%. The assessee argued that all purchases were genuine, while the Revenue contended that the entire purchase amount should be added to the income.
3. The Assessing Officer's findings were based on information from the Sales Tax Department, and verification exercises confirmed the parties' non-existence at the provided addresses. The CIT(A) upheld the purchases as bogus.
4. The CIT(A) sustained the addition of 12.5% based on the assessee's submissions regarding the usage of materials in municipal contract work, citing judgments from the Hon'ble Gujarat High Court. The CIT(A) affirmed that the purchases were made from other parties in the grey market.
5. The Tribunal affirmed the CIT(A)'s decision to sustain the 12.5% addition, dismissing both the assessee's and Revenue's cross-appeals for Assessment Year 2009-10.

Assessment Year 2010-11:
6. Since the facts and circumstances for this year were similar to 2009-10, the Tribunal dismissed the cross-appeals for Assessment Year 2010-11 following the decision made for the previous year.
7. Ultimately, both sets of appeals were dismissed, upholding the addition of 12.5% of the disputed purchases for both Assessment Years.

In conclusion, the Tribunal affirmed the CIT(A)'s decision to add 12.5% of the disputed purchases to the total income, considering the factual and legal aspects presented during the proceedings.