2018 (1) TMI 24 - AT - Income Tax

Bogus purchases - purchase from grey market - Held that - In the present case though the assessee had in his statement recorded under Sec. 133A recorded during the course of the survey proceedings admitted that the purchases made from the aforesaid parties were bogus and had offered the purchase consideration of ₹ 60,08,692/- as his income, as well as the A.O had also gathered information that the aforesaid supplier parties had admitted before the Sales tax authorities that they had merely provided accommodation entries and had not carried out any genuine sales, however, independent of the aforesaid facts, the CIT(A) had sustained the addition primarily for the reason that the assessee had failed to substantiate the genuineness of the purchase transactions by placing on record supporting documentary evidence. We find that the CIT(A) after appreciating the fact that the purchases were recorded in the stock register and the corresponding sales of the same had been accepted by the A.O, therefore, had fairly concluded that the addition in the hands of the assessee was liable to be restricted to the extent of the profit element involved in making of the purchases, which could safely be concluded to have been made by the assessee from the Open/grey market. As regards the claim of the assessee that the lower authorities had erred in taking the quantum of the alleged bogus purchases at ₹ 60,08,592/- as against ₹ 59,83,592/-, we find that the aggregate of the purchases for the year under consideration as had been reproduced at Page 2 & 3 of the assessment order works out to ₹ 60,08,592/-. We find that as there is neither anything available on record which could go to prove that there is any such mistake, nor any assistance from the assessee who had chosen not to put up an appearance during the course of hearing of the appeal, therefore, we are constrained to conclude that the lower authorities had rightly adopted the bogus purchases at ₹ 60,08,592/-.

Summary

Issues Involved:
1. Addition of alleged bogus purchases.
2. Quantum of alleged bogus purchases.
3. Validity of the CIT(A)'s order.

Issue-wise Detailed Analysis:

1. Addition of Alleged Bogus Purchases:
The assessee, engaged in the manufacturing of furniture, filed returns for A.Ys 2008-09, 2009-10, and 2010-11. Survey proceedings under Sec. 133A revealed bogus purchases totaling ?2,52,23,634/- across these years. The Assessing Officer (A.O.) added these amounts to the assessee's income based on statements made during the survey and the failure to provide evidence of genuine transactions. The CIT(A) acknowledged the lack of evidence for genuine purchases but noted that the stock register and corresponding sales were maintained. Thus, the CIT(A) concluded that purchases were made from the open/grey market and restricted the addition to the profit element involved, calculated at 12.5% of the alleged bogus purchases, relying on the Gujarat High Court judgment in Commissioner of Income Tax Vs. Simit P. Sheth.

2. Quantum of Alleged Bogus Purchases:
For A.Y. 2008-09, the assessee disputed the quantum of alleged bogus purchases, arguing it should be ?59,83,592/- instead of ?60,08,592/-. The tribunal found no evidence supporting this claim and upheld the lower authorities' figure. For A.Y. 2009-10, the A.O. added ?1,52,99,514/- based on survey disclosures, which was also upheld after considering the profit element. For A.Y. 2010-11, the A.O. added ?23,26,351/- based on similar grounds, and the CIT(A) restricted the addition to the profit element of ?2,90,793/-.

3. Validity of the CIT(A)'s Order:
The CIT(A) orders were challenged on the grounds of being bad in law and on facts. However, the tribunal found the CIT(A)'s approach reasonable, given the assessee's failure to substantiate the genuineness of the purchases and the maintained stock register and corresponding sales. The CIT(A)'s reliance on the judgment of the Gujarat High Court was deemed appropriate. The tribunal upheld the CIT(A)'s decision to restrict additions to the profit element involved in the alleged bogus purchases.

Separate Judgments:
The tribunal delivered a consolidated order for all three assessment years, applying the same rationale and legal principles to each case. The appeals for A.Ys 2008-09, 2009-10, and 2010-11 were dismissed based on consistent findings and conclusions.

Conclusion:
The tribunal upheld the CIT(A)'s orders, which restricted the additions to the profit element of the alleged bogus purchases, calculated at 12.5%, and dismissed the assessee's appeals for all three assessment years. The tribunal found no merit in the claims regarding the quantum of purchases and the validity of the CIT(A)'s orders. The appeals were dismissed, and the CIT(A)'s approach was deemed reasonable and legally sound.