2017 (9) TMI 381 - AT - Income Tax

Bogus purchases - assessee having made alleged purchases from accommodation entry providers i.e. hawala dealers - bogus bills with no actual purchases - Held that - The said party Nutan Metals has confessed before sales tax authorities that they are engaged in providing accommodation entries without supplying any material physically wherein only bogus bills are issued. The said party has allegedly issued bills to the tune of ₹ 56,55,569/- to the assessee. The said information was received by Revenue from Sales Tax Department wherein the assessee is stated to be beneficiary of the accommodation entry provided by Nutan Metals. Notices u/s 133(6) by the AO to the said party remained uncomplied with by Nutan Metals and the assessee could not produce the said party before the authorities below. The assessee is not able to discharge the onus lay on it under provisions of the 1961 Act in this case. Thus as the assessee has obtained actual material from grey market at lower price and to save on VAT, grey market profits etc. has obtained bogus invoices from the said party namely Nutan Metals. The consumption/utilization of the material reflected by the said bogus invoices stood proved while the GP already declared is 31.91% which included these alleged purchases, which has already suffered tax. End of justice in this case will be best served in this if addition is sustained to the tune of 6% of the purchases to the tune of ₹ 56,55,569 so made from Nutan Metals, which will lead to confirmation/upholding of addition to the tune of ₹ 3,39,334/-

Summary

Issues Involved:
Appeal against assessment orders for AY 2011-12 and 2012-13 regarding disallowance of purchases from alleged accommodation entry providers.

Analysis:
1. Background: The appeals were directed against appellate orders dated June 16, 2016, passed by the CIT(A) for AY 2011-12 and 2012-13, arising from assessment orders passed by the AO under the Income-tax Act.

2. Common Issue: Both appeals involved the disallowance of purchases due to alleged involvement with accommodation entry providers issuing bogus bills without supplying physical material. The case was reopened by the AO based on information received from the Sales Tax Department regarding purchases made from a specific entity.

3. Assessee's Defense: The assessee, a manufacturer of heat exchangers, claimed the purchases were genuine, providing ledger copies, purchase bills, and other records. The utilization of material for manufacturing was explained, with no adverse comments from the AO regarding material consumption.

4. AO's Findings: The AO rejected the books of accounts, estimating GP on alleged bogus purchases. The AO concluded that the assessee benefited from grey market transactions and estimated additional income based on the disallowed purchases.

5. Appellate Proceedings: The CIT(A) upheld the AO's assessment order, leading to the appeals before the tribunal. Despite the assessee's absence during the tribunal hearing, the DR relied on the CIT(A)'s order.

6. Tribunal's Decision: The tribunal reviewed the facts, considering the assessee's proof of material utilization against the admission of the accommodation entry provider regarding bogus invoices. The tribunal found the assessee failed to discharge the burden of proof, leading to a partial allowance of the appeals with an upheld addition to the income.

7. Legal Precedent: Reference was made to a Supreme Court decision emphasizing the importance of maintaining proper records and the authority's discretion in best judgment assessments.

8. Final Ruling: The tribunal partially allowed the appeals, upholding the addition to the income based on the disallowed purchases, with the decision for AY 2011-12 applied to AY 2012-13 due to similar circumstances.

In conclusion, the tribunal's decision highlighted the importance of substantiating transactions and the consequences of involvement with accommodation entry providers in tax assessments. The ruling emphasized the need for proper documentation and compliance with tax regulations to avoid adverse implications on income determination.