2017 (11) TMI 1602 - AT - Income Tax

Unexplained expenditure - accommodation bills for introducing unaccounted goods into the accounted streams - CIT-A came to conclusion that disallowance @25% of the alleged bogus purchases is warranted but as differential between GP ratio of the year under consideration with GP ratio of AY 2012-13 which was the highest GP ratio in the last 5 years led learned CIT(A) to uphold additions to the tune of 100% of alleged bogus purchases - Held that - We have discussed anomaly in working of learned CIT(A) as he undertook cherry picking by choosing highest GP ration in all these five years as well chose for subsequent years without giving any basis/justification for such choice. We have observed that the tribunal in assessee s own case after considering entire factual matrix of the case has upheld addition to the tune of 12.50% of the alleged bogus purchases for AY 2009-10 Respectfully following the afore-stated decision of the tribunal in assessee s own case for AY 2009-10, disallowance in the instant appeal is restricted to 12.5% of the bogus purchases - Decided partly in favour of assessee.

Issues Involved:

1. Disallowance of Unexplained Expenditure under Section 69C.
2. Genuineness of Purchases from Alleged Hawala Dealers.
3. Rejection of Books of Accounts under Section 145(3).
4. Quantum of Disallowance for Bogus Purchases.

Issue-Wise Detailed Analysis:

1. Disallowance of Unexplained Expenditure under Section 69C:

The assessee appealed against the disallowance of ?59,73,566/- under Section 69C of the Income Tax Act, 1961, which the Assessing Officer (AO) treated as unexplained expenditure. The AO based this decision on information from the Maharashtra Sales Tax Department indicating that the assessee was a beneficiary of bogus purchases. The AO observed that the purchases were recorded in the books of accounts, but the corresponding suppliers did not exist or did not supply any material. Consequently, the AO concluded that the purchases were not genuine and made additions to the tune of ?59,73,566/- towards bogus purchases as unexplained expenditure under Section 69C.

2. Genuineness of Purchases from Alleged Hawala Dealers:

The AO received information from the Sales Tax Department that the assessee had obtained bogus purchase bills from four parties without actual delivery of goods. Notices issued to these parties returned unserved, and the assessee could not provide valid addresses or confirmations from these suppliers. Despite submitting purchase invoices, delivery challans, and bank statements showing payments through banking channels, the assessee failed to prove the physical delivery of goods. The AO and CIT(A) concluded that the purchases were bogus based on affidavits from the alleged suppliers stating that they issued fake bills without supplying any material.

3. Rejection of Books of Accounts under Section 145(3):

The CIT(A) rejected the assessee's books of accounts under Section 145(3) due to the inability to verify the genuineness of purchases and the lack of proper documentation, such as transport receipts and delivery challans. The CIT(A) noted that the assessee failed to provide current mailing addresses, confirmations, and other necessary details to substantiate the purchases. Consequently, the CIT(A) upheld the AO's decision to reject the books of accounts, citing various judicial precedents that support the rejection of books when the genuineness of transactions is in question.

4. Quantum of Disallowance for Bogus Purchases:

The CIT(A) initially upheld the AO's decision to disallow 100% of the bogus purchases. However, upon detailed analysis and considering judicial precedents, the CIT(A) concluded that a disallowance of 25% of the bogus purchases would be appropriate. Despite this conclusion, the CIT(A) compared the Gross Profit (GP) ratios of different years and upheld the 100% disallowance based on the highest GP ratio in the subsequent year (AY 2012-13). The tribunal, however, found this approach to be cherry-picking and inconsistent. The tribunal noted that in the assessee's own case for AY 2009-10, a disallowance of 12.5% of the bogus purchases was upheld. Therefore, the tribunal decided to restrict the disallowance to 12.5% of the bogus purchases for the years under consideration (AY 2010-11 and AY 2011-12), providing partial relief to the assessee.

Conclusion:

The appeals for AY 2010-11 and AY 2011-12 were partly allowed. The tribunal restricted the disallowance to 12.5% of the bogus purchases, following the precedent set in the assessee's own case for AY 2009-10. This decision was based on a detailed analysis of the facts, documentation provided by the assessee, and relevant judicial precedents. The tribunal emphasized the need for a balanced approach in determining the quantum of disallowance, considering the overall factual matrix and the assessee's business operations.

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