2018 (5) TMI 349 - AT - Income Tax

Bogus purchases - CIT-A granting 100% relief to the assessee - Held that - Assessee has engaged into dealings in the grey market. Dealings in the grey market give the assessee various savings at the expense of the Exchequer. Hence, on the overall consideration of facts and circumstances and following the decision of Hon ble Gujarat High Court in the case of CIT vs Simit P. Sheth 2013 (10) TMI 1028 - GUJARAT HIGH COURT we hold that a disallowance of 12.5% of the bogus purchase would meet the end of justice - Decided partly in favour of revenue

Issues:
- Assessment of addition on account of bogus purchases
- Burden of proof on the assessee
- Application of Section 114(g) of the Indian Evidence Act
- Reliance on documents and parties in support of purchases
- Credibility of information received by the assessing officer
- Reopening of assessment based on information
- Non-production of parties for confrontation
- Consideration of evidence and precedents in determining relief

Analysis:
1. Assessment of addition on account of bogus purchases: The assessing officer reopened the assessment based on information received regarding alleged bogus transactions by the assessee with specific parties. The purchases were deemed non-genuine as the parties were known for providing accommodation bills. The absence of proper supporting documents and failure to establish the genuineness of transactions led to the conclusion that the purchases were made to evade tax.

2. Burden of proof on the assessee: The burden of proof was on the assessee to substantiate the genuineness of the transactions. Despite submitting invoices, the assessee failed to produce the parties for confrontation. The parties themselves had admitted to engaging in bogus sales/purchases, further weakening the assessee's case. The failure to provide verifiable evidence resulted in the conclusion that the assessee had indeed made bogus purchases.

3. Application of Section 114(g) of the Indian Evidence Act: The assessing officer argued that adverse inference could be drawn against the party possessing knowledge of facts if not explained. However, the tribunal did not find this argument persuasive in the absence of concrete evidence supporting the genuineness of the transactions.

4. Reliance on documents and parties in support of purchases: The assessee claimed to have purchased materials through brokers and sent them directly to clients without changes. However, the failure to produce parties for verification and the acknowledgment of bogus dealings by the parties themselves undermined the credibility of the transactions.

5. Credibility of information received by the assessing officer: The tribunal found the information received by the assessing officer regarding bogus suppliers to be credible. Despite attempts to contact the parties, they could not be located, further raising doubts about the genuineness of the transactions.

6. Reopening of assessment based on information: The assessment was reopened based on the information received, and the tribunal upheld the credibility of this decision. The failure to provide concrete evidence and the non-existence of the parties strengthened the case for considering the purchases as non-genuine.

7. Non-production of parties for confrontation: The failure to produce the parties for confrontation and the lack of evidence regarding transportation expenses contributed to the conclusion that the purchases were bogus. The absence of confirmation from the parties and their non-existence further supported this finding.

8. Consideration of evidence and precedents in determining relief: The tribunal considered various legal precedents and decisions related to bogus purchases. Based on these precedents and the specific circumstances of the case, the tribunal concluded that a disallowance of 12.5% of the bogus purchases would be appropriate, modifying the order of the Commissioner of Income Tax (Appeals) accordingly.

In conclusion, the tribunal partly allowed the appeals filed by the Revenue, emphasizing the importance of concrete evidence, burden of proof, and adherence to legal precedents in cases involving alleged bogus purchases.

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