2017 (9) TMI 520 - AT - Income Tax

Purchases from Bogus suppliers - AO reopened the assessment - genuineness of suppliers not proved as no goods are supplied - AO made additions of entire amount u/s 69C - Various documents submitted by assessee like PAN Card , Balance Sheet, Bank St. etc - CIT(A) restricted the addition in respect of only profit earned to extent 12.5% for AY 2009-10, AY 2011-12, AY 2012-13 and in AY 2010-11 the same is restricted to 20% - Various judicial pronouncements relied on by CIT(A), that the purchases were not bogus, but were made from parties other than those mentioned in books of accounts, only the profit element embedded in such purchases could be added to the assessee s income and as such no question of law arose in such estimation.-All appeals are dismissed.

Summary

Issues Involved:
1. Reopening of assessment under Sections 147/148 of the IT Act.
2. Addition on account of bogus purchases.
3. Rejection of books of accounts under Section 145 of the IT Act.
4. Determination of profit margin on bogus purchases.

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Sections 147/148 of the IT Act:
The appellant challenged the reopening of the case, arguing that it was based solely on information from the investigation wing without independent application of mind by the AO. The appellant contended that the reopening was impermissible as it was based on suspicion rather than "reason to believe." The CIT(A) rejected this argument, emphasizing that the AO had followed due process, including issuing notice under Section 148 and providing reasons for reopening. The CIT(A) cited Supreme Court rulings to support that the AO's belief must not be arbitrary and should be based on relevant reasons. The CIT(A) concluded that the reopening was justified as the AO had specific information about transactions with certain parties that were not confirmed, thus fulfilling the conditions of Section 147.

2. Addition on Account of Bogus Purchases:
The AO made additions for bogus purchases based on the non-existence of suppliers and lack of responses to notices under Section 133(6). The appellant argued that the purchases were genuine, supported by documentary evidence such as bank statements, purchase bills, and stock tallies. The CIT(A) noted that payments were made through banking channels but found that many suppliers had stated that payments were credited to their accounts and then withdrawn as cash, indicating non-genuine transactions. The CIT(A) relied on various judicial precedents to uphold the addition, emphasizing the need to look at surrounding circumstances and human probabilities. The CIT(A) ultimately restricted the addition to the profit margin embedded in the bogus purchases, applying a rate of 12.5%.

3. Rejection of Books of Accounts under Section 145 of the IT Act:
The AO rejected the books of accounts due to the non-confirmation of transactions by certain parties. The CIT(A) acknowledged that the authenticity of the books was not fully established but criticized the AO for not making more efforts to pinpoint specific mistakes. The CIT(A) decided to focus on the merits of the case rather than technicalities, emphasizing the need for a judicious view.

4. Determination of Profit Margin on Bogus Purchases:
The CIT(A) determined that the profit margin embedded in the bogus purchases should be taxed. The CIT(A) cited several cases where courts had held that only the profit element in such purchases should be added to the income. The CIT(A) applied a profit margin of 12.5% to the net bogus purchases, excluding VAT, resulting in an addition of ?8,30,780/- for the A.Y. 2009-10. Similar adjustments were made for other assessment years, with the profit margin varying between 12.5% and 20% based on the specific circumstances of each year.

Conclusion:
The Tribunal upheld the CIT(A)'s findings, emphasizing that the AO had conducted an independent inquiry and found the suppliers to be non-existent. The Tribunal agreed with the CIT(A)'s approach of taxing the profit margin embedded in the bogus purchases rather than the entire amount. The appeals of both the assessee and the revenue were dismissed, confirming the CIT(A)'s orders for all the assessment years under consideration.