2017 (11) TMI 861 - AT - Income Tax

Addition u/s 69C - bogus purchases - purchase from grey market at lower price - profit estimation - Held that - The assessee did came forward and gave document to prove utilisation/consumption of material which was commented by learned CIT(A) to have proved utilisation/consumption of material for construction contracts executed by the assessee. Under these circumstances, the fair conclusion that can be drawn is that the assessee did purchased these material but from grey market at lower price and obtained bills from these ten parties at higher rates to justify utilisation/consumption for construction contracts and to suppress profits. The end of justice in this case will be met if the profit embedded in such alleged purchases is estimated being savings made by the assessee by obtaining material from grey market at lower price and brought to tax . In our view, the estimated profit in this case need to be estimated @12.5% of these alleged bogus purchases which need to be brought to tax. Thus, an additional income of ₹ 38,08,709/- is brought to tax and if the said income is added to the declared income of the assessee in return of income he total income stood at approx 8% of the gross contract value which in the case of the tax-payers engaged in civil contracts is considered as bench mark under presumptive tax scheme for small contractors u/s 44AD .

Issues Involved:
1. Deletion of additions made under Section 69C of the Income-tax Act, 1961.
2. Reliance on the judgment of CIT Vs. Nikunj Eximp Enterprises Pvt. Ltd.
3. Acceptance of the assessee's claim despite contrary statements by parties before Sales-Tax Authorities.
4. Lack of support for alleged bills by supply of goods and undelivered notices under Section 133(6).
5. Failure of the assessee to produce parties from whom alleged bills were received.
6. Overlooking findings of the Sales-Tax Department and the Assessing Officer's enquiries.
7. Request to set aside the CIT(A)'s order and restore the Assessing Officer's order.
8. Leave to amend or add new grounds.

Detailed Analysis:

1. Deletion of Additions under Section 69C:
The Assessing Officer (AO) made additions to the income of the assessee, treating purchases from certain parties as bogus and non-genuine. The AO issued notices under Section 133(6) to various parties, which returned unserved. The assessee failed to produce confirmations or corroborative evidence regarding the receipt of goods and services from these parties. Consequently, the AO added ?2,03,27,686/- for purchases and ?20,12,218/- for sundry creditors to the assessee's income. The CIT(A) deleted these additions, holding that the assessee had discharged its onus by providing various documents, including stock registers and inward movement records, proving the genuineness of the purchases and the existence of liabilities.

2. Reliance on CIT Vs. Nikunj Eximp Enterprises Pvt. Ltd.:
The CIT(A) relied on the judgment in CIT Vs. Nikunj Eximp Enterprises Pvt. Ltd., where it was held that the mere return of notices unserved is insufficient to treat purchases as non-genuine. The CIT(A) observed that the assessee provided sufficient evidence, such as stock registers and inward movement of goods, to substantiate the purchases.

3. Acceptance of Assessee's Claim Despite Contrary Statements:
The Revenue argued that the parties had accepted before the Sales-Tax Authorities that they had not conducted any business with the assessee. However, the CIT(A) accepted the assessee's claim, considering the documentary evidence provided, including purchase invoices, ledger confirmations, and bank statements evidencing payments.

4. Lack of Support for Alleged Bills by Supply of Goods and Undelivered Notices:
The AO noted that the alleged bills were not supported by the supply of goods and that notices issued under Section 133(6) were returned undelivered. Despite this, the CIT(A) concluded that the assessee had provided sufficient evidence to prove the genuineness of the purchases, including stock inward/outward registers and job cards evidencing the physical receipt of materials.

5. Failure to Produce Parties:
The assessee failed to produce the parties from whom the alleged bills were received. The CIT(A) held that the non-production of parties and the return of notices unserved were not sufficient grounds to treat the purchases as non-genuine, given the other documentary evidence provided by the assessee.

6. Overlooking Findings of Sales-Tax Department and AO's Enquiries:
The AO's findings, corroborated by the Sales-Tax Department's investigation, indicated that the parties were listed as hawala dealers. The CIT(A) did not consider this sufficient to discredit the assessee's evidence, focusing instead on the detailed analysis of stock records and consumption patterns.

7. Request to Set Aside CIT(A)'s Order:
The Revenue requested that the CIT(A)'s order be set aside and the AO's order be restored. The tribunal, however, concluded that while the purchases were likely made from the grey market at lower prices, the end of justice would be served by estimating the profit embedded in such purchases. The tribunal estimated an additional income of ?38,08,709/- to be brought to tax, reflecting 12.5% of the alleged bogus purchases.

8. Leave to Amend or Add New Grounds:
The Revenue sought leave to amend or add new grounds, which is a standard procedural request in appeals.

Conclusion:
The tribunal partly allowed the Revenue's appeal, concluding that the assessee likely made purchases from the grey market at lower prices and obtained bills from the listed parties at higher rates. The tribunal ordered an additional income of ?38,08,709/- to be brought to tax, reflecting 12.5% of the alleged bogus purchases. This decision aligns the total income with the benchmark under the presumptive tax scheme for small contractors under Section 44AD.

← Previous Next →