2017 (11) TMI 1197 - AT - Income Tax

Addition of bogus purchases - profit element embedded in these purchase transactions - Held that - We are of the considered opinion that there could be no sale without purchases. The sales turnover achieved by the assessee has not been disputed by the revenue and the payments were through banking channels. On the other hand, the assessee could not produce confirmations from the alleged bogus suppliers and further notices sent u/s 133(6) were returned back undelivered in both the cases. Therefore, in such a situation, the addition, which could be made, was to account for profit element embedded in these purchase transactions to factorize for profit element earned by assessee against possible purchase of material in the grey market and undue benefit of VAT against bogus purchases. We estimate the same @5% since the goods in question were subjected to VAT rate of 1%. Accordingly, we sustain the addition to the extent of 5% of bogus purchases of ₹ 47,45,081/- which comes to ₹ 2,37,254/-. - Decided partly in favour of revenue

Summary

Issues Involved:
Assessment of relief against bogus purchases for Assessment Year 2009-10.

Analysis:
1. The appeal by the Revenue challenged the relief provided to the assessee against certain bogus purchases amounting to ?47,45,081 for the assessment year 2009-10.
2.1. The assessee, a resident corporate engaged in manufacturing gold ornaments, was assessed under section 143(3) for the impugned assessment year with an addition of ?47,45,081 for bogus purchases.
2.2. Reassessment was initiated based on information from the Sales Tax Department regarding dealers involved in bogus purchases, where the assessee was found to benefit from such transactions.
2.3. Despite the assessee's claim of genuine purchases, the Assessing Officer treated them as bogus based on the unserved notice to the supplier and judicial precedents, adding the amount to the assessee's income.
3. The assessee successfully contended before the Commissioner of Income Tax (Appeals) by providing ledger extracts, purchase bills, and other evidence, leading to the deletion of the additions.
4. The Revenue argued that the onus to prove the purchases was on the assessee, highlighting the lack of delivery confirmation and material consumption, justifying the additions.
5. The assessee's representative emphasized the accepted turnover, audited accounts, and possession of primary purchase documents, supporting the CIT(A)'s decision to delete the additions.
6. The Tribunal observed that sales cannot occur without purchases, noting the absence of confirmations from suppliers and undelivered notices under section 133(6), estimating a 5% addition to account for potential profit from the transactions.
7. Consequently, the Revenue's appeal was partly allowed, sustaining an addition of ?2,37,254 against the bogus purchases.

This detailed analysis covers the issues involved in the legal judgment, outlining the arguments presented by both parties and the Tribunal's reasoning leading to the final decision.