2017 (11) TMI 321 - AT - Income Tax

Bogus purchases - quantification of disallowance on account of bogus purchase - Held that - AO himself has admitted the fact of existence of purchase albeit from unregistered dealers who do not have bill books. Simultaneously, the corresponding sales have also not been disputed. Noticeably, the assessee has recorded total sales to the tune of ₹ 323.43 lakhs during the year and recorded purchase of ₹ 401.88 lakhs including impugned purchases of ₹ 209.49 lakhs from M/s.Vishal Traders. Apparently, in the absence of actual purchases made from unknown unregistered dealers, it will not be possible to record the staggering sales. Thus, the fact of purchases made from unidentified other source cannot be denied on wholesome basis. Therefore, in our view, the CIT(A) has correctly appreciated the facts and granted relief towards actual purchases. We hold that the CIT(A) has rightly drawn its conclusion and estimated 25% of the value of the bogus purchases as unaccounted income of the assessee. We thus do not find any potency in the plea of the assessee for further relief towards downward estimation.

Summary

Issues Involved:
1. Deletion of addition on account of bogus purchases.
2. Confirmation of addition on account of bogus purchases.
3. Acceptance of third-party statements as evidence.
4. Application of an estimated rate for confirming bogus purchases.
5. Initiation of penalty proceedings for concealment of income.

Detailed Analysis:

1. Deletion of Addition on Account of Bogus Purchases:
The Revenue appealed against the deletion of ?1,57,12,258 out of a total addition of ?2,09,49,678 made on account of bogus purchases. The Assessing Officer (AO) had observed that the assessee had shown purchases from M/s. Vishal Traders, which was found to be issuing bogus bills without actual delivery of goods. The CIT(A) re-examined the issue and concluded that while the purchases were not made from M/s. Vishal Traders, the existence of purchases could not be rejected entirely. The CIT(A) estimated that the purchases were made from unregistered dealers, leading to an inflated purchase cost. Consequently, the addition was scaled down to 25% of the total alleged bogus purchases.

2. Confirmation of Addition on Account of Bogus Purchases:
The assessee appealed against the confirmation of ?52,37,420 (25% of the total addition) by the CIT(A). The CIT(A) applied principles from the case of Sanjay Oilcake Industries (2009) 316 ITR 274 (Guj.) to estimate the addition. The Tribunal upheld the CIT(A)'s decision, noting that the AO himself had accepted the existence of purchases, albeit from unregistered dealers, and that corresponding sales were not disputed. The Tribunal found the estimation of 25% towards inflated purchases to be fair and befitting the circumstances.

3. Acceptance of Third-Party Statements as Evidence:
The assessee contended that the AO erred by accepting third-party statements as evidence for bogus purchases and that the CIT(A) also erred in confirming this. The AO had relied on the statement of the proprietor of M/s. Vishal Traders and other intermediaries, who admitted that the bills issued were bogus. The Tribunal noted that the assessee failed to produce any evidence to corroborate actual delivery of goods and could not counter the statements recorded. Thus, the Tribunal upheld the reliance on third-party statements.

4. Application of an Estimated Rate for Confirming Bogus Purchases:
The assessee argued that the CIT(A) erred by applying a 25% rate for confirming bogus purchases without specific evidence. The Tribunal observed that the estimation of inflated purchases is context-specific and depends on the peculiar facts of each case. The Tribunal referred to previous cases where a 25% estimation was deemed fair and found no merit in the plea for further relief. The Tribunal emphasized that the assessee's substantial engagement in camouflaging purchases justified the 25% estimation.

5. Initiation of Penalty Proceedings for Concealment of Income:
The assessee also contended that the initiation of penalty proceedings under section 271(1)(c) for concealment of income was erroneous. However, the Tribunal did not provide a detailed discussion on this issue in the judgment, focusing instead on the quantification and legitimacy of the alleged bogus purchases.

Conclusion:
The Tribunal dismissed both the Revenue's and the assessee's appeals, upholding the CIT(A)'s decision to restrict the addition towards bogus purchases to 25% of the total alleged amount. The Tribunal found the CIT(A)'s estimation and reliance on third-party statements justified and appropriate given the circumstances. The order was pronounced in open court on 02/11/2017.