2017 (10) TMI 64 - AT - Income Tax

Bogus purchases - addition u/s 69C - Held that - AO added the entire amount of bogus purchases to the total income of the assessee and the assessee could not prove the genuineness of the purchases from the concerned parties by producing the necessary documentary evidences. The notices issued to the parties u/s 133(6) were returned unserved. CIT(A) deleted the addition to the extent of 90% of the bogus purchases. We further noticed that the AO during the assessment proceedings accepted the sales which were made out of the hawala purchases. In a case where the assessee obtains bogus bills, the purchase are generally made from grey market and the assessee saves in the form of non payment of VAT and other incidental levies. Addition has be made on percentage basis in order to cover the leakages of revenue in such cases which the ld. CIT(A) has rightly done. Therefore, order passed by the CIT(A) sustaining the addition to the extent of 10% of bogus purchases to recover the revenue leakages is correct and needed to be upheld. We, therefore, inclined to confirm the order of CIT(A) by dismissing the appeal of the assessee. Levy of penalty u/s 271A - default committed u/s 44A - Held that - In the present case, we find that the auditor of the company have not made any adverse comments on the books of account maintained by the assessee and duly certified the books of the assessee. Under these circumstances, we are not in agreement with the conclusion drawn by the CIT(A) that the penalty u/s 271A is rightly imposed by the AO. We hold that the CIT(A) has wrongly upheld the order of the AO. Therefore, we set aside the same and direct the AO to delete the penalty. Resultantly the appeal of the assessee is allowed.

Summary

Issues:
1. Reopening of assessment for the assessment year 2009-10.
2. Addition of 10% of bogus purchases for the assessment year 2010-11.
3. Levy of penalty under section 271A for default under section 44A.
4. Sustaining the addition of 10% of bogus purchases for multiple assessment years.

Reopening of Assessment (2009-10):
The assessee filed four appeals, including one against the order dated 1.9.2016 passed by the ld.CIT(A) for the assessment year 2009-10. The appeals, cross-appeals, and cross-objection were clubbed together and disposed of by a common order. The issue of reopening the assessment was raised initially but later not pressed by the assessee, leading to its dismissal.

Addition of 10% of Bogus Purchases (2010-11):
The primary issue in this case was the confirmation of ?6,01,430 (10% of ?60,14,350) as bogus purchases by the ld. CIT(A) for the assessment year 2010-11. The AO had added the entire amount of bogus purchases to the total income of the assessee, which was partly sustained by the CIT(A) at 10% to cover revenue leakages due to hawala transactions. The Tribunal upheld the CIT(A)'s decision, emphasizing the need to make additions on a percentage basis in such cases to prevent revenue leakages.

Levy of Penalty under Section 271A (Default under Section 44A):
The issue revolved around the confirmation of the penalty of ?25,000 under section 271A for default under section 44A. The AO imposed the penalty for the failure to maintain books of accounts, which was upheld by the CIT(A). However, the Tribunal disagreed, noting that the books of accounts were audited, maintained, and certified by the auditors, and the penalty was wrongly imposed. Consequently, the penalty was directed to be deleted.

Sustaining the Addition of 10% of Bogus Purchases (Multiple Years):
The Tribunal addressed appeals related to sustaining the addition of 10% of bogus purchases for multiple assessment years. The decision taken in one appeal was applied mutatis mutandis to other identical appeals, resulting in the deletion of 90% of the bogus purchases. The appeals by the assessee were partly allowed based on the consistent approach taken in similar cases.

In conclusion, the Tribunal dismissed the appeal of the assessee for one year, allowed the appeal against the penalty, and partly allowed appeals related to the addition of bogus purchases for multiple years. The orders were pronounced on 29.9.2017 after considering all the relevant facts and legal arguments presented during the proceedings.