2018 (2) TMI 176 - AT - Income Tax

Bogus purchases - Managing Director of the company admitted that purchase made from the parties were non-genuine - Held that - Keeping in view the substantial material which had been placed on record by the assessee before the lower authorities, viz. copy of the stock register and details of consumption and material purchased, details of opening work in progress, closing work in progress, stock statement as on 31.03.2008 and 31.03.2009 and consumption formula required as per Government books, it can safely be concluded that the purchases claimed by the assesses to have been made from the aforementioned parties were utilized by the assessee for the construction of the roads carried out by the assessee in the course of the execution of its contract works. We find that a coordinate bench of the Tribunal while disposing of the appeal in the assesse s own case for A.Y 2010-11, wherein identical facts and issue were there before the Tribunal, had restricted the disallowance to the extent of 2% of alleged bogus purchases. - Decided against revenue

Issues Involved:
1. Deletion of addition made on account of bogus purchases.
2. Failure to provide quantity-wise tally of purchases and consumption.
3. Estimation of suppressed profit on bogus transactions.

Detailed Analysis:

1. Deletion of Addition Made on Account of Bogus Purchases:
The revenue challenged the CIT(A)'s decision to delete the addition made by the Assessing Officer (A.O) on account of bogus purchases. During the survey proceedings, the Managing Director of the assessee company admitted that the purchases made from certain parties were non-genuine. The A.O, based on information from the Sales Tax Authority, reopened the case under Sec. 147 of the Income Tax Act, 1961, and added the amount of ?5,03,85,966/- to the assessee's income, considering these purchases as bogus. However, the CIT(A) restricted the disallowance to 2% of the alleged bogus purchases, following the Tribunal's decision in the assessee's own case for A.Y. 2010-11.

2. Failure to Provide Quantity-Wise Tally of Purchases and Consumption:
The A.O observed that the assessee failed to provide a quantity-wise tally of purchases and their consumption in the manufacturing process. The assessee attempted to substantiate the genuineness of the purchases by submitting certificates from the Mumbai Metropolitan Region Development Authority (MMRDA) and other authorized agencies, showing that the materials were consumed as per the contract specifications. The CIT(A), after reviewing the material placed on record, concluded that the purchases were utilized for the construction of roads and restricted the disallowance to 2% of the alleged bogus purchases.

3. Estimation of Suppressed Profit on Bogus Transactions:
The A.O argued that the suppressed profit on account of bogus transactions should be estimated at 12.5% of the net purchases, considering the nature of the assessee's business as a contractor. However, the CIT(A) and the Tribunal in the assessee's own case for A.Y. 2010-11, observed that the assessee had provided substantial evidence of material consumption in the execution of contracts, which were subject to strict inspection by government authorities. Therefore, the CIT(A) restricted the disallowance to 2% of the alleged bogus purchases to cover any potential leakage of revenue.

Conclusion:
The Tribunal upheld the CIT(A)'s order, finding no infirmity in restricting the disallowance to 2% of the alleged bogus purchases. The appeal of the revenue was dismissed, affirming that the assessee had provided sufficient evidence of material consumption and that the entire amount of purchases could not be disallowed merely based on the suppliers being blacklisted by the Sales Tax Department. The Tribunal's decision was consistent with its earlier ruling in the assessee's own case for A.Y. 2010-11.

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