2017 (11) TMI 119 - AT - Income Tax

Bogus purchase - profit determination - Held that - As observed that the assessee has achieved turnover of ₹ 7.19 crores and net profit is 75.23 lacs. We have carefully gone through the paper book filed by the assessee running into 472 pages . We have also observed that these parties are not traceable and notices issued by the AO u/s. 133(6) to these parties have returned un-served. The inspector deputed by the A.O to verify these parties have reported that these parties are not traceable. The assessee is not able to produce stock register and the assessee is not able to shown movement of the material. The assessee has however claimed that purchases invoices are available and payments were made by cheques. It is claimed by the assessee that consumption and utilisation of the material is proved which is disputed by the Ld. DR who has stated before us no such documents to prove consumption/utilisation of material has been filed by the assessee before the AO . The assessee was directed to file paper book before the bench which is now filed by the assessee in two volumes running into 472 pages. The assessee has not filed any certificate with the paper book that these documents have been filed before the A.O and / or learned CIT(A) and from the careful perusal of these document filed in paper book before us , we could not find that the assessee has co-related purchases with the sales and utilisation/ consumption of the material was proved by the assessee before the authorities below. No, doubt large number of documents are filed before us running into 472 pages in paper book filed in two volumes. These documents need verification and authentication by the authorities below . Thus, keeping in view interest of justice and fair play it is deemed fit and appropriate that the matter need to be set aside and restored to the file of the A.O for fresh determination of the issue on merits de-novo in accordance with law as we are of the considered view that the assessee so far could not prove utilisation / consumption of material and genuineness of the purchases but since large number of evidences are filed before us , the same required verification/authentication by authorities below. Appeal of the assessee allowed for statistical purposes.

Summary

Issues Involved:
1. Confirmation of profit element at 25% and treatment of the same as bogus purchases.
2. Ignorance of detailed evidences and judicial precedents by CIT(A).
3. Rejection of prices of purchased goods by AO on a summary and conjecture basis.

Issue-wise Detailed Analysis:

1. Confirmation of Profit Element at 25% and Treatment as Bogus Purchases:
The assessee, a proprietor of "UMA Arts" engaged in work contracting for furniture, fixtures, civil, and electrical fittings, was alleged to have made bogus purchases from hawala dealers. The AO, based on information from the sales tax department, reopened the case and issued notices under Section 148, which were duly served. The AO concluded that the purchases were bogus as the parties were untraceable and no material was supplied. Consequently, the AO added 100% of the alleged bogus purchases amounting to ?67,02,550/- to the income of the assessee. The CIT(A), however, restricted the addition to 25% of the alleged bogus purchases, relying on judicial precedents, as the purchases were unverifiable.

2. Ignorance of Detailed Evidences and Judicial Precedents by CIT(A):
The assessee contended that the purchases were genuine and provided ledger accounts, copies of bills, bank statements, and delivery challans. It was argued that the materials were consumed for business purposes and billed to customers. The assessee claimed that the CIT(A) ignored these evidences and judicial precedents. However, the CIT(A) noted that the parties were untraceable and the purchases unverifiable, thus limiting the addition to 25%.

3. Rejection of Prices of Purchased Goods by AO on Summary and Conjecture Basis:
The AO rejected the prices of purchased goods, citing the unavailability of stock registers, transport proofs, delivery challans, and the inability to correlate the purchases with business utilization. The assessee argued that the AO's rejection was based on summary and conjecture without considering the detailed evidences provided. The tribunal observed that the assessee failed to prove the utilization and consumption of materials and the genuineness of purchases. The tribunal directed the matter to be set aside and restored to the AO for fresh determination, allowing the assessee to present additional evidences.

Conclusion:
The tribunal allowed the appeals for statistical purposes, setting aside the matter to the AO for fresh determination on merits, ensuring the assessee is given a proper opportunity to present evidences. The tribunal emphasized the need for verification and authentication of the documents provided by the assessee to prove the genuineness of the purchases and their utilization in business. The decision applies mutatis mutandis to the appeals for the assessment years 2010-11 and 2011-12.