2017 (11) TMI 628 - AT - Income Tax

Additions to the tune of 2% of bogus purchase - bogus transactions being accommodation entries - Held that - We have observed that the assessee has made bogus purchases from Sthapna Trade Impex P. Ltd. and Ritesh Corporation to the tune of ₹ 96,84,465/- which has been confirmed by the said suppliers to be bogus transactions being accommodation entries wherein only paper invoices were issued without supplying goods physically. The assessee could not produce said parties before the A.O. nor the assessee could prove utilization / consumption of the said material . Thus, quantitative reconciliation of the stock/material was not done by the assessee before the authorities below. Nor any paper book is filed before the tribunal to support the contentions of the assessee. The assessee also could not produce evidence as to the delivery of material to the assessee such as lorry receipts, delivery challans, octroi receipts etc. to prove delivery of material by the supplier to the assessee. A.O has made random verification with respect to the sales and has come to the conclusion that sales are genuine and business losses were disallowed by the AO. We have observed that there is categorically finding by the AO that assessee has not proved utilization/consumption of the material purchased by the assessee and corresponding quantitative reconciliation with the said sales entries were not produced by the assessee before the AO . The learned CIT(A) has restricted disallowance to 2% of bogus purchases without brining on record as to how deficiencies as pointed out by the AO were met. Thus the appellate order of learned CIT(A) cannot be sustained and is hereby order to be set aside and in our considered view this matter need to be set aside and resorted to the file of the A.O for denovo determination of the issue - Decided in favour of revenue for statistical purposes.

Issues Involved:
1. Deletion of additions made on account of commission earned by the assessee from providing accommodation entries of sales and booking fictitious losses.
2. Allowing the appeal of the assessee without appreciating the facts brought out by the Assessing Officer.
3. Deletion of Gross Profit (G.P.) addition by applying the decision of the Jurisdictional Tribunal.

Detailed Analysis:

Issue 1: Deletion of Additions on Account of Commission and Fictitious Losses
The Revenue challenged the deletion of additions made by the Assessing Officer (AO) on account of commission earned by the assessee from providing accommodation entries of sales and booking fictitious losses. The AO had made these additions based on the statement of the Director of the assessee company, who admitted to indulging in such activities. The learned Commissioner of Income Tax (Appeals) [CIT(A)] restricted the disallowance/addition to 2% of the bogus purchases, referencing the decision in the case of Innovators Facade vs. ACIT, which fixed the addition at 2% of the alleged bogus purchases. The CIT(A) deleted the addition of ?38,55,200/- claimed as business loss on account of accommodation entries.

Issue 2: Allowing the Appeal Without Appreciating AO's Facts
The Revenue contended that the CIT(A) allowed the appeal without considering the AO's findings, which included the non-production of documentary evidence such as delivery challans, transport receipts, and octroi receipts. The AO had concluded that the purchases from certain parties were bogus and added 25% of the bogus purchases to the total income. The CIT(A) reduced this to 2%, which the Revenue argued was incorrect.

Issue 3: Deletion of G.P. Addition
The CIT(A) deleted the G.P. addition of ?60,70,433/- by applying the decision of the Jurisdictional Tribunal in the case of Innovators Facade, which the Revenue had not accepted and had filed an appeal against before the High Court.

Tribunal's Findings:
The Tribunal noted that the assessee was engaged in manufacturing and trading chemicals and had made purchases from hawala dealers, which were deemed bogus by the AO based on information from the Maharashtra VAT department and the DDIT (Investigation). The AO relied on the statement of the Director, who admitted to obtaining accommodation bills without actual purchases. The AO added 25% of the bogus purchases to the income and disallowed the business loss claimed by the assessee.

The CIT(A) restricted the addition to 2% of the bogus purchases, relying on the decision in Innovators Facade. However, the Tribunal observed that the CIT(A) did not provide a categorical finding on how the deficiencies pointed out by the AO were met. The Tribunal found that the assessee failed to prove the utilization/consumption of the material purchased and did not produce evidence of delivery.

Conclusion:
The Tribunal set aside the appellate order of the CIT(A) and remanded the matter back to the AO for a de novo determination. The assessee was directed to prove the utilization/consumption of the material purchased and reconcile the same with sales. The Tribunal emphasized the need for the assessee to provide evidence of the genuineness of the purchases and sales. The appeals for both assessment years were allowed for statistical purposes, and the AO was instructed to re-examine the issues in accordance with the law.

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