2018 (1) TMI 580 - AT - Income Tax

Bogus purchase - failure to discharge the onus of proving the purchase of material as genuine - Held that - The assessee has been continuously declaring the net profit in the range of 1.71 per cent. to 4.65 per cent. and the disallowance made by the Assessing Officer if accepted would increase the net profit to the tune of 25.15 per cent. which is very abnormal. The contention of the authorised representative that the suppliers of these goods have no permanent place for carrying on the business can be accepted. There were no defects in the books of account of the assessee has been pointed out by the Assessing Officer. It cannot also be said that after purchasing bitumen to the tune of ₹ 2.30 crores in the work can be executed by using the building material to the tune of ₹ 1.07 crores only as equivalent building material is also required to utilise the bitumen. Moreover the assessee has done major part of the work for the Government departments and the authenticity of the work done has been confirmed by the Government departments. In the case of CIT v. Leader Valves P. Ltd. 2006 (2) TMI 126 - PUNJAB AND HARYANA High Court wherein held that if the purchase were treated as bogus it would be impossible to manufacture the goods shown to have been manufactured by it. This is applicable in the case of the assessee also as the disallowance will lead to net profit of 25 per cent. and also the fact that the work executed by the assessee has been certified by the Government agencies. The quantitative details of Bitument has been clearly mentioned along with correspondent utilization of mitti, sand and crusher stone. In the case of ITO v. Liyakat Ali Mohd. Sadik 2003 (9) TMI 326 - ITAT JODHPUR wherein it was held that when purchases are made from unregistered dealers and are supported by bills and vouchers no addition can be warranted in the absence of rejection of books of account. Thus the action of the learned Commissioner of Income-tax (Appeals) deleting the addition is hereby confirmed. - Decided in favour of assessee.

Issues Involved:
1. Justification of the Commissioner of Income-tax (Appeals) in restricting the addition from ?1,97,55,357 to ?15,00,000.
2. Onus on the assessee to prove the genuineness of the purchases.
3. Validity of the Assessing Officer's disallowance of ?1,97,55,357.
4. Consistency in net profit rates over the years.
5. Basis for the estimation of ?15,00,000 as discrepancies by the Commissioner of Income-tax (Appeals).

Issue-wise Detailed Analysis:

1. Justification of the Commissioner of Income-tax (Appeals) in restricting the addition from ?1,97,55,357 to ?15,00,000:
The learned Commissioner of Income-tax (Appeals) restricted the addition made by the Assessing Officer from ?1,97,55,357 to ?15,00,000. The Commissioner noted that the Assessing Officer did not follow basic facts of the case and failed to consider that the appellant was engaged in civil construction, making most purchases from petty suppliers without fixed business locations. The Commissioner emphasized that the appellant had provided a list of 30 suppliers with addresses and that 61.93% of the purchases were verified. The Commissioner also highlighted that the appellant had consistently maintained similar books of accounts in previous years, which were accepted by the Department.

2. Onus on the assessee to prove the genuineness of the purchases:
The Revenue argued that the assessee failed to produce confirmation from all suppliers, thus not discharging the onus of proving the genuineness of the purchases. The Assessing Officer disallowed ?1,97,55,357 due to the non-production of certain suppliers and lack of confirmations. However, the Commissioner of Income-tax (Appeals) noted that the appellant had declared a net profit rate consistent with previous years and that the Assessing Officer did not reject the books of accounts under section 145(3) of the Act.

3. Validity of the Assessing Officer's disallowance of ?1,97,55,357:
The Commissioner of Income-tax (Appeals) found that the Assessing Officer failed to reject the books of accounts or point out any major defects. The Commissioner also noted that the net profit rate would abnormally increase to 25.15% if the disallowance was accepted, which was unrealistic for the construction business. The Commissioner relied on the precedent that no addition can be made if the books of accounts are not rejected and proper quantitative details are maintained.

4. Consistency in net profit rates over the years:
The appellant had declared net profit rates ranging from 1.71% to 4.65% over the years, which were accepted by the Department. The Commissioner of Income-tax (Appeals) observed that the Assessing Officer ignored this consistency and failed to work out any other deficiencies in the books of accounts. The Commissioner concluded that the disallowance leading to a net profit rate of 25.14% was highly exorbitant and unrealistic.

5. Basis for the estimation of ?15,00,000 as discrepancies by the Commissioner of Income-tax (Appeals):
The Commissioner of Income-tax (Appeals) concluded that an addition of ?15,00,000 would suffice to cover any deficiencies noted by the Assessing Officer. This estimation was based on the overall facts, past history, and the absence of any major defects in the books of accounts. The Tribunal, however, noted that the basis for this estimation was not clearly provided and reduced the disallowance to ?5,00,000 to maintain consistency with subsequent years' assessments.

Conclusion:
The Tribunal upheld the deletion of the major addition of ?1,97,55,357, confirming the rationale provided by the Commissioner of Income-tax (Appeals) that the Assessing Officer failed to reject the books of accounts or point out significant defects. The Tribunal also noted the consistency in the appellant's net profit rates. However, the Tribunal reduced the confirmed disallowance from ?15,00,000 to ?5,00,000 to align with subsequent assessments, thus partly allowing the assessee's cross-objection. The final order was pronounced on November 2, 2017.

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