2018 (1) TMI 1290 - AT - Income Tax

Disallowance of bogus purchases - estimation of profit - Held that - Ld. Commissioner of Income Tax (Appeal) has not mentioned any reasoning to restrict the disallowance. Even if, the benefit of already declared GP of 2.46% is granted to the assessee still there is no infirmity in the assessment order in making the disallowance at 10% of the bogus purchases, therefore, considering the factual matrix and the decisions mentioned in earlier paras of this order, we reverse the order of the Ld. Commissioner of Income Tax (Appeal) and affirmed the disallowance made by the Ld. Assessing Officer. Thus, this ground of the Revenue is allowed. Addition u/s 68 - genuineness and authenticity of the transaction besides the identity and creditworthiness of the said party - Held that - Assessee was maintaining two ledger accounts with Tube India one for purchase and other for receipt of payments. It is seen from the closing balance of ₹ 24,133/- that after accounting the purchases during the year again the payments were made and there is one more ledger account which shows receipt of ₹ 78,60,000/-, the total of which comes to ₹ 78,84,133/-, which is the exact figure appearing as sundry creditor in the balance-sheet. The assessee also produced the confirmation from Tube India before the Assessing Officer, therefore, we are in agreement with the finding of the Ld. Commissioner of Income Tax (Appeal) that the addition was not justifiably made. So far as, the identity of M/s Tube India is concerned, which is not in doubt and it is not an unknown party. - Decided against revenue

Issues Involved:
1. Disallowance of bogus purchases.
2. Addition under Section 68 of the Income Tax Act for unexplained cash credits.

Detailed Analysis:

1. Disallowance of Bogus Purchases:
The Revenue challenged the restriction of disallowance of bogus purchases to ?6,06,904, which was calculated as the estimated profit of 7.54% embedded in the total purchase transaction of ?80,49,133. The assessee did not produce delivery challan, lorry receipts, or other corroborative evidence, and the parties were not produced for examination.

The Tribunal considered various judicial precedents to reach a conclusion. The Hon'ble Gujarat High Court in Sanjay Oilcakes Industries vs CIT held that the apparent sellers were not traceable, leading to the conclusion that these parties were conduits for the assessee to inflate purchase prices. The Tribunal also referred to CIT vs Bholanath Poly Fab. Pvt. Ltd., where it was held that the purchases may have been made from bogus parties, but the purchases themselves were not bogus, and only the profit margin embedded in such purchases should be taxed.

Similarly, in CIT vs Vijay M. Mistry Construction Ltd., the court upheld that disallowance based on estimates is justified and does not warrant interference. The Tribunal also noted that in CIT vs Nikunj Exim Enterprises Pvt. Ltd., the Hon'ble Bombay High Court held that merely because suppliers did not appear before the Assessing Officer, it cannot be concluded that the purchases were not made.

In the present case, the Tribunal found that the assessee was not able to prove the existence of the supplier and there was circumstantial evidence casting doubt on the nature of transactions. The Tribunal reversed the order of the Commissioner of Income Tax (Appeal) and affirmed the disallowance at 10% of the bogus purchases, considering it reasonable and in line with judicial precedents.

2. Addition under Section 68 of the Income Tax Act for Unexplained Cash Credits:
The Revenue also contested the deletion of the addition of ?74,80,000 made under Section 68 in respect of transactions with Tube India. The Assessing Officer had treated the credits from Tube India as unexplained cash credits.

The Tribunal found that the assessee maintained two ledger accounts with Tube India, one for purchases and another for receipt of payments. The closing balance of ?24,133 after accounting for purchases and payments matched the sundry creditor figure in the balance sheet. The assessee also produced confirmation from Tube India before the Assessing Officer.

The Tribunal agreed with the findings of the Commissioner of Income Tax (Appeal) that the addition was not justified as the identity of Tube India was not in doubt, and it was not an unknown party. Therefore, the Tribunal dismissed this ground of the Revenue.

Conclusion:
The appeal of the Revenue was partly allowed. The Tribunal affirmed the disallowance of 10% of the bogus purchases and dismissed the addition under Section 68 for unexplained cash credits. The order was pronounced in the open court in the presence of the Ld. DR.

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