2018 (5) TMI 351 - AT - Income Tax

Bogus purchases - disallowance of 25% out of hawala purchases should be done said by CIT-A - 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 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 assessee

Issues involved:
1. Validity of reopening u/s. 147 of the Act raised in assessee's appeal
2. Sustenance of addition out of alleged bogus purchases by the ld. Commissioner of Income Tax (Appeals) in assessee's appeal
3. Reduction of addition made by the Assessing Officer raised in Revenue's appeal

Validity of Reopening u/s. 147 of the Act:
In the assessee's appeal, the first issue pertains to the validity of reopening u/s. 147 of the Act. The Counsel of the assessee decided not to press this ground, leading to the dismissal of the ground related to the validity of reopening.

Sustenance of Addition from Alleged Bogus Purchases:
The second issue raised in the assessee's appeal concerns the sustenance of addition from alleged bogus purchases. The Assessing Officer received information from the Sales Tax Department regarding purchases from suspicious parties who admitted to providing bills without delivering goods. The ld. Commissioner of Income Tax (Appeals) partially upheld the action, disallowing 25% of hawala purchases for one assessment year and confirming the disallowance for the other.

Reduction of Addition Made by the Assessing Officer:
In the Revenue's appeal, the issue raised was the reduction of the addition made by the Assessing Officer. The ld. Commissioner of Income Tax (Appeals) was criticized for reducing the addition, with the Revenue contending that the reduction was erroneous.

The Assessing Officer observed that the purchases from certain parties lacked credible documentary evidence and the appellant failed to provide substantial proof of the purchases' genuineness. Despite the appellant's claims of using raw materials in manufacturing goods, the lack of confirmations from the parties and unavailability of documentary evidence led to the conclusion that the purchases were inflated. The ld. Commissioner of Income Tax (Appeals) upheld part of the disallowance, considering the lack of evidence supporting the purchases.

During the proceedings, it was noted that the parties providing bogus bills were non-existent, as confirmed by the Sales Tax Department. The assessing officer made necessary inquiries, issued notices to the parties (returned unserved), and found no evidence of goods provision or confirmations from the parties. The Tribunal emphasized that the purchases from non-existent parties could not be considered genuine, citing relevant legal precedents and decisions.

Referring to legal precedents, the Tribunal highlighted the unsustainable nature of considering documents from non-existent parties as valid evidence of purchases. The Tribunal also considered the decision of the Hon'ble Gujarat High Court, emphasizing the need for full disallowance in cases of bogus purchases. However, based on the specific circumstances of the case and previous rulings, the Tribunal decided on a 12.5% disallowance of the bogus purchases, modifying the lower authorities' orders accordingly.

In conclusion, the Tribunal partly allowed the assessee's appeal and dismissed the Revenue's appeals. The decision was based on the overall consideration of facts and legal precedents, leading to the modification of the disallowance percentage for the alleged bogus purchases.

This comprehensive analysis covers the issues of validity of reopening, sustenance of addition from alleged bogus purchases, and reduction of addition made by the Assessing Officer as addressed in the legal judgment by the Appellate Tribunal ITAT Mumbai.

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