2017 (9) TMI 2002 - AT - Income Tax

Estimation of income - Bogus purchases - onus to substantiate the purchases - HELD THAT - As there could be no sale without purchase / consumption of material since assessee was engaged as real estate developers which is material intensive. The sales turnover achieved by the assessee has not been disputed by the revenue and the payments were through banking channels. At the same time the assessee could not produce any confirmations from any of the 25 alleged bogus suppliers and further notices u/s 133(6) could not be served due to non-availability of any of the party at the given address which cast serious doubt on assessee s claim. The addition which could be made was to account for profit element embedded in these purchase transactions to factorize for profit element earned by assessee against possible purchase of material in the grey market and undue benefit of VAT against bogus purchases. We estimate the same @8% keeping in view the assessee s nature of business and overall facts of the case. Accordingly we sustain the addition to the extent of 8% of bogus purchases - Revenue s appeal stands partly allowed.

Summary

Issues:
Assessment of additions on account of bogus purchases for Rs. 3,56,16,927 for Assessment Year 2009-10.

Analysis:
The appeal by the Revenue challenged the deletion of certain additions on account of bogus purchases. The assessee, a resident corporate engaged in interior decoration and real estate development, was assessed for the impugned year with an addition of Rs. 3,56,16,927 for bogus purchases. The reassessment was initiated based on information from the Sales Tax Department regarding dealers involved in bogus purchases. Despite the assessee's contentions and submissions supported by ledger extracts, purchase bills, and payment details, the Assessing Officer (AO) found the purchases to be bogus due to lack of transportation receipts, confirmations from suppliers, and inability to produce parties for transaction confirmation. The AO added the amount to the assessee's income. However, the CIT(A) allowed the assessee's appeal, noting that the sales were accepted, and the additions were unjustified. The Revenue appealed this decision.

The Departmental Representative argued that the assessee failed to establish the delivery or consumption of material, and the burden to substantiate purchases was on the assessee. The Revenue contended that payments through banking channels were insufficient without confirmations or party confirmations. The Tribunal observed that as a real estate developer, the assessee's sales turnover was not disputed, but confirmations from alleged suppliers were lacking, and notices to suppliers were unsuccessful. Due to the absence of evidence for material delivery, the Tribunal estimated an 8% profit element in the bogus purchases to factorize for profit earned by the assessee. Consequently, the Tribunal sustained an addition of Rs. 28,49,354, representing 8% of the bogus purchases.

In conclusion, the Revenue's appeal was partly allowed, and the addition on account of bogus purchases was sustained at 8% of the total amount.