2017 (7) TMI 423 - AT - Income Tax

Unexplained expenditure u/s.69C - bogus purchase bills - G.P. determination - Held that - AO has made addition in respect of bogus purchases and found that notices issued to all these bogus suppliers u/s.133 (6) were returned undelivered by postal authorities and assessee also failed to produce the parties before the AO. However, the CIT(A) has not dealt with this observation of AO and without controverting AO s finding deleted entire addition made on account of bogus purchases. From the record, we found that assessee had shown GP in the A.Y.2008-09 at 7.53% and in A.Y.2009-10 at 7.51%. However during the year under consideration, GP shown by the assessee was only 6.09% which is much lower than the GP shown in the earlier year. However, no reasons were assigned for decline of GP during the year under consideration. Thus we restrict the addition to the extent of 5% of the bogus purchase so as to fulfill the leakage in revenue - Decided partly in favour of revenue.

Summary

Issues:
- Appeal against deletion of addition under section 69C of the IT Act
- Dispute regarding bogus purchase bills and unexplained expenditure

Analysis:
1. The appeal was filed by the revenue against the order of CIT(A) for the assessment year 2010-11 concerning the deletion of an addition under section 69C of the IT Act amounting to ?2,61,77,677. The AO had observed that the assessee, a dealer in metals, had made purchases from parties identified by the Sales Tax Department as bogus. Despite being asked to produce evidence, the assessee failed to do so, leading to the addition by the AO.

2. The CIT(A) deleted the addition after considering the submissions made by the assessee. The CIT(A) noted that the assessee had provided details of the purchase bills, payment sources, and evidence of sales based on these purchases. The CIT(A) found that the AO did not dispute these facts and allowed the appeal based on the evidence presented by the assessee.

3. The revenue, dissatisfied with the CIT(A)'s decision, appealed further. The revenue argued that the notices sent to the alleged suppliers were returned undelivered, and the assessee failed to produce the parties before the AO. The revenue contended that the assessee did not provide sufficient evidence to prove actual receipt of goods from the suppliers.

4. The Tribunal considered the arguments of both sides and reviewed the orders of the lower authorities. It noted that the AO had made the addition based on the bogus purchases, the undelivered notices to suppliers, and the assessee's failure to produce the parties. The Tribunal found a decline in the gross profit (GP) shown by the assessee in the relevant year compared to previous years. To address the revenue leakage, the Tribunal restricted the addition to 5% of the bogus purchase amount.

5. Consequently, the Tribunal partially allowed the revenue's appeal by upholding the addition to the extent of 5% of the bogus purchase amount. The decision aimed to rectify the revenue leakage while considering the overall facts and circumstances of the case.