2017 (12) TMI 1479 - AT - Income Tax

Bogus purchases - profit estimation - Held that - Factum of purchases from bogus suppliers have been established. Under these facts and circumstances, the CIT(A) has very reasonably restricted the addition to the extent of 12.5% and had given further relief to the extent of profit already declared by the assessee @6.5%. Thus, net addition so sustained by the CIT(A) is to the extent of 6.25% of the alleged bogus purchases.

Summary

Issues:
1. Reopening of assessment under section 147 of the Income Tax Act for A.Y. 2010-11 based on information from the MVAT Department.
2. Denial of natural justice due to inadequate opportunity to verify documents and statements.
3. Disallowance of inflated purchases without sufficient evidence.

Analysis:

Issue 1: Reopening of Assessment
The AO reopened the assessment under section 147 based on information from the DGIT(lnv.), Mumbai, indicating the assessee's involvement in bogus purchases. The AO sought details to verify the genuineness of purchases, but the assessee failed to produce substantial evidence. The AO made an addition of 12.5% of the non-genuine purchases. The CIT(A) confirmed the reopening and the addition, considering the lack of evidence to establish the purchases from alleged parties.

Issue 2: Denial of Natural Justice
The assessee contended that the CIT(A) did not provide adequate opportunity to verify documents and statements, leading to a denial of natural justice. However, the CIT(A) upheld the reopening and addition, emphasizing the lack of concrete evidence to support the purchases from the alleged parties. The AO's rejection of account payee cheques as conclusive proof further supported the decision of the CIT(A).

Issue 3: Disallowance of Inflated Purchases
The CIT(A) confirmed the addition of 12.5% of the alleged bogus purchases, citing precedents where similar disallowances were upheld by higher courts. The CIT(A) reasoned that the purchases from untraceable parties raised doubts on the genuineness of transactions. The CIT(A) considered the net addition to be 6.25% after giving credit for the profit declared by the assessee. The ITAT upheld the CIT(A)'s decision, noting the established fact of purchases from bogus suppliers.

In conclusion, the ITAT dismissed the assessee's appeal, affirming the CIT(A)'s order regarding the reopening of assessment and the disallowance of inflated purchases. The decision was based on the lack of concrete evidence to substantiate the genuineness of transactions with alleged parties. The ITAT found no reason to interfere with the CIT(A)'s findings, ultimately upholding the net addition of 6.25% of the alleged bogus purchases.