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2018 (7) TMI 1406 - AT - Income TaxBogus purchases - GP determination - Held that - The addition, which could be made, was to account for profit element embedded in these purchase transactions to factorize for profit element earned by assessee against possible purchase of material in the grey market and undue benefit of VAT against alleged bogus purchases, which lower authorities have rightly done. However, considering GP rate already declared by the assessee, we find that the estimation of 17% is on the higher side and therefore, we restrict the same to 5% of alleged bogus purchases. The same comes to ₹ 1,44,808/-. The order of Ld. first appellate authority stand modified to that extent.
Issues:
Appeals by assessee contesting addition on account of alleged bogus purchases and challenging reassessment proceedings on legal grounds. Analysis: Issue 1: Addition on account of alleged bogus purchases - The assessee, engaged in manufacturing activities, was subjected to reassessment proceedings due to alleged bogus purchases from a supplier named Arun Paper & Iron Traders. - The reassessment was triggered by information received from the DGIT (Investigation) regarding dealers involved in bogus purchase bills. - The assessee maintained regular books of accounts but lacked adequate stock records, raising suspicions. - The supplier admitted to making bogus purchases without proper documentation. - Despite the assessee's defense, the assessing officer estimated an addition of ?4.92 Lacs based on the GP rate declared by the assessee. - The CIT(A) confirmed the addition, leading the assessee to appeal before the ITAT. - The ITAT considered the legal grounds raised, including the validity of reassessment, and found that the assessing officer had sufficient tangible information to justify reopening the assessment. - On the merits, the ITAT noted the lack of transportation details on purchase documents and inadequate stock records by the assessee. - The ITAT compared the case with similar instances of alleged bogus purchases by the supplier and upheld a 5% addition on the alleged bogus purchases, reducing the initial addition to ?1,44,808. Issue 2: Reassessment Proceedings and Legal Grounds - The ITAT dismissed the legal grounds raised by the assessee, emphasizing the assessing officer's prima facie opinion based on tangible information from the investigation wing. - The ITAT upheld the validity of the reassessment based on the information received, even if not conclusively accurate. - The ITAT highlighted the importance of forming a prima facie opinion for valid reassessment jurisdiction. Issue 3: Appeal for AY 2008-09 to 2010-11 - Similar additions on alleged bogus purchases were made for subsequent assessment years. - The ITAT restricted the additions to 5% of the alleged bogus purchases for AY 2008-09 to 2010-11, reducing the additions to ?2,31,930, ?2,51,572, and ?1,89,048, respectively. - Consequently, the appeals for AY 2008-09 to 2010-11 were partly allowed by the ITAT. Conclusion: All the appeals by the assessee were partly allowed by the ITAT, reducing the additions on alleged bogus purchases for multiple assessment years based on a 5% estimation. The ITAT upheld the reassessment proceedings and legal grounds while considering the merits of the case and relevant judicial pronouncements.
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