2017 (2) TMI 170 - AT - Income Tax

Bogus purchases - addition made under Section 69C - addition on basis of information gathered by the Sales Tax department - Held that - There is no material on record to conclusively prove that the purchases made by the Assessee are bogus purchases and nothing is brought on record to suggest that the information gathered by the Sales Tax department conclusively proves that the dealers are providing only the accommodation entries to the Assessee before us, thus we hold that addition made under Section 69C cannot be sustained. At the same time, keeping in view the nature of business of the Assessee and the fact that the assessee is making local purchases without any transportation bills, delivery challans etc., the possibility of the Assessee making purchases in grey market on cash cannot be ruled out. Therefore, keeping in view the facts and circumstances of the case, we direct the Assessing Officer to disallow 2% of the above purchases to meet the anomalies. - Decided partly in favour of assessee

Summary

Issues Involved:
1. Reopening of assessment under Section 147 of the Income Tax Act.
2. Validity of disallowance of purchases as bogus under Section 69C of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 147 of the Income Tax Act:
The Assessee challenged the reopening of assessment under Section 147, arguing that it was bad in law. However, the Tribunal held that the reopening was valid as it was based on tangible material received from the Sales Tax department. The information indicated that certain dealers provided accommodation entries for bogus purchase bills. The Tribunal concluded that since the assessments were reopened based on tangible materials and information coming into the possession of the Assessing Officer at a later stage, the reopening of assessments under Section 147 was valid. Consequently, the grounds raised by the Assessee against the reopening were dismissed.

2. Validity of Disallowance of Purchases as Bogus under Section 69C of the Income Tax Act:
The Assessing Officer disallowed the purchases from certain parties, treating them as bogus based on information from the Sales Tax department. The Assessee was unable to produce the parties for verification, and the Assessing Officer noted discrepancies such as returned notices and untraceable parties. The CIT (Appeals) upheld the Assessing Officer's decision, agreeing that the Assessee failed to prove the genuineness of the purchases and that the parties had admitted to providing accommodation entries.

The Assessee argued that the information from the Sales Tax department was not shared with them, and they provided all necessary documents to prove the genuineness of the transactions. The Assessee also cited various judicial precedents where similar additions were deleted.

The Tribunal observed that the sole basis for treating the purchases as bogus was the information from the Sales Tax department, which was not shared with the Assessee. The Assessee provided bank statements, ledger copies, and other evidence to support the purchases. The Tribunal noted that the Assessing Officer did not doubt the sales corresponding to the purchases, implying that without purchases, sales could not have been made. The Tribunal emphasized that the Assessing Officer failed to provide conclusive evidence that the purchases were bogus and did not conduct further investigations.

The Tribunal referred to several judicial precedents, including the case of "ITO Vs. Sanjay V Dhruv," where it was held that merely relying on information from the Sales Tax department without further investigation is insufficient to treat purchases as bogus. The Tribunal concluded that there was no material on record to conclusively prove that the purchases were bogus and that the addition under Section 69C could not be sustained.

However, considering the nature of the Assessee's business and the absence of transportation bills and delivery challans, the Tribunal acknowledged the possibility of purchases being made in the grey market. Therefore, the Tribunal directed the Assessing Officer to disallow 2% of the purchases to address the anomalies.

Conclusion:
The appeals of the Assessee were partly allowed. The reopening of assessments under Section 147 was upheld as valid, but the addition under Section 69C for bogus purchases was not sustained. Instead, a 2% disallowance of the purchases was directed to account for potential anomalies.