2017 (9) TMI 1524 - AT - Income Tax

Bogus purchases - information received from Sales Tax Department regarding suspicious suppliers - Held that - AO added 100% of such supplies in assessee s income. By the impugned order CIT(A) restricted the addition by estimating profit to the extent of 12% on such purchases after observing that corresponding sales effected by assessee has not been doubted by the AO. From the record found that AO did not find any inflation in purchase price or inflation in consumption or suppression of production. The goods so purchased from these suppliers were directly delivered by the representative of the suppliers at the factory itself. No octroi was payable as goods were delivered within the limits of Mumbai Municipality. I also found that assessee has shown very good GP rate on the sales affected by it during the year at 25.18% in the A.Y.2010-11 and 23.26% in the A.Y.2009-10. Thus modify both the orders of the lower authorities and direct AO to restrict the addition to the extent of 10% of such bogus purchases. - Decided partly in favour of assessee.

Summary

Issues:
Cross appeals by assessee and revenue against CIT(A) order for A.Y. 2009-10 and 2010-11 under IT Act, 1961.

Analysis:
1. Assessee's Grounds (2009-10 and 2010-11):
- Assessee contested addition under section 69C of the Income Tax Act.
- Alleged lack of opportunity for rebuttal against information used.
- Requested leave to amend grounds and submit additional submissions.

2. Revenue's Grounds (2009-10):
- Disallowance on account of bogus purchases.
- Dispute over the genuineness of purchases from alleged bogus vendors.
- CIT(A) decision to restrict disallowance to 12.5% of total purchases challenged.

3. Revenue's Grounds (2010-11):
- Challenge to CIT(A) decision on restricting disallowance to 12.5% without considering primary onus.
- Failure to produce suppliers for verification.
- Non-consideration of Supreme Court decision on adding entire bogus purchases to income.

4. Judgment:
- AO relied on information from Sales Tax Department regarding suspicious suppliers.
- CIT(A) restricted addition to 12% of bogus purchases due to undisputed corresponding sales.
- No evidence of inflation in purchase price or production suppression found.
- Goods directly delivered to factory, no octroi payable within Mumbai limits.
- Assessee demonstrated higher gross profit compared to similar businesses.
- Tribunal modified orders, directing AO to limit addition to 10% of bogus purchases.
- Appeals of revenue dismissed, while those of the assessee allowed in part.

This judgment highlights the assessment of additions based on alleged bogus purchases, the burden of proof on the assessee, and the significance of corresponding sales in determining the legitimacy of transactions. The decision emphasizes the importance of factual evidence and the reasonableness of additions made by tax authorities, ultimately leading to a partial allowance of the assessee's appeals.