2017 (6) TMI 299 - AT - Income Tax

Bogus purchases - Held that - It is settled law that when the sales are not disputed, the entire purchases to make the sales cannot be disallowed. It is true that assessee has not at all been able to prove that the purchases from the parties booked on the accounts are genuine. No book and records have been shown. However, in the absence of any finding that sales are also bogus, the purchases to make the corresponding sales cannot be held to be completely bogus. This points out to the practice that assessee had made purchases from grey market. Operating in the grey market leads to various savings on account of non-payment of various taxes by use of unaccounted money to the assessee. On a similar situation, Hon ble Gujarat High Court in the case of Simit P.Sheth (2013 (10) TMI 1028 - GUJARAT HIGH COURT) has upheld the disallowance of 12.5% of the bogus purchases. Since the proposition that when sales are not disputed, entire purchases cannot be held to be bogus is supported by Hon ble jurisdictional High Court decision in Nikunj Exim Enterprises 2013 (1) TMI 88 - BOMBAY HIGH COURT , in considered opinion, the interest of justice will be served if the addition in this case is restricted to 12.5% of the bogus purchases. Appeal filed by the assessee stands partly allowed.

Summary

Issues:
1. Justification of addition made in assessment order
2. Treatment of purchases as bogus/non-genuine
3. Levying of interest under sections 234B and 234C of the Act

Issue 1: Justification of Addition Made in Assessment Order:
The appeal challenged the order of the learned CIT(A) confirming the assessment order dated 20.03.2015 under section 144 r.w.s. 147 of the Income Tax Act, 1961. The appellant strongly objected to the addition made in the assessment order. The appellant argued that the CIT(A) erred in passing the order without appreciating the facts and circumstances of the case. The appellant contended that the addition made was unjustified and should be deleted.

Issue 2: Treatment of Purchases as Bogus/Non-Genuine:
The appellant contested the treatment of purchases as bogus/non-genuine amounting to Rs. 36,32,266. The CIT(A) upheld the action of the Assessing Officer (AO) in making this addition without appreciating the facts and circumstances. The appellant argued that the purchases were duly accounted for in the books of accounts with proper documentary evidence. The appellant further contended that the AO relied on statements under the Maharashtra Value Added Tax Act without providing an opportunity for cross-examination, leading to an unjustified addition.

Issue 3: Levying of Interest under Sections 234B and 234C of the Act:
The appellant disputed the levying of interest under sections 234B and 234C of the Act, claiming a denial of liability. The appellant argued that the CIT(A) erred in levying interest without appreciating the appellant's position on the matter.

The appellant, a firm engaged in trading ferrous and non-ferrous metals, filed its return for the assessment year 2009-10, declaring total income of Rs. 2,65,651. Following information about a scam involving bogus purchases, the assessment was reopened, resulting in an assessment of total income at Rs. 38,97,920. The AO found that the appellant failed to prove the genuineness of purchases made from certain parties, leading to the addition of Rs. 36,32,266 to the total income. The appellant's appeal to the CIT(A) was unsuccessful, prompting the appeal before the ITAT.

During the ITAT hearing, the appellant sought to limit the addition based on precedents, while the Departmental Representative referenced a different decision regarding restrictions on additions for bogus purchases. The ITAT, after careful consideration, noted that while the appellant failed to prove the genuineness of purchases, the sales were not disputed. Therefore, the entire purchases could not be disallowed. The ITAT restricted the addition to 12.5% of the bogus purchases, citing principles of the Income-tax Act and previous court decisions.

In conclusion, the ITAT partially allowed the appeal by restricting the addition to 12.5% of the bogus purchases. The decision highlighted the importance of proving the genuineness of transactions and the impact on tax liabilities. The judgment emphasized the need for proper documentation and adherence to legal principles in assessing income and disallowances.