2018 (10) TMI 496 - AT - Income Tax

Bogus purchases - assessee could not conclusively substantiate the purchases made - Held that - There could be no sale without actual purchase of material since the assessee was engaged in contract work. The sales turnover achieved by the assessee has not been disputed by the revenue and the payments were through banking channels. The assessee was in possession of primary purchases documents. The assessee could not conclusively substantiate the purchases made by him and failed to produce any of the party to confirm the transactions. The delivery of the material could not be substantiated and even the quantitative details could not be provided by the assessee. All these factors cast a serious doubt on assessee s claim. Therefore, in such a situation, the addition, which could be made, was to account for profit element embedded in these purchase transactions to factorize for profit earned by assessee against possible purchase of material in the grey market and undue benefit of VAT against such bogus purchases. Therefore, we estimate the same @12.5% of alleged bogus purchases of ₹ 65.99 Lacs which comes to ₹ 8.25 Lacs. The balance additions stand deleted. The grounds and the appeal stand partly allowed. Commission Expenditure - assessee claimed the aforesaid expenditure as commission payment to an entity namely Corporate Alliances - Held that - AR has submitted that the commission has been paid against independent professional services rendered by the said entity to the assessee and the same was not merely in the nature of liasioning services. Our attention has been drawn to the profile of the said entity to submit that it was independent professional entity and was not merely acting as an agent of the assessee. The supporting documents in the shape of invoices, agreement, engagement letter etc. have been placed on record. It is also noted that similar additions made by Ld. AO in AY 2009-10 has been deleted by Ld. first appellate authority, finding substance in assessee s claim. Therefore finding strength in the arguments of Ld. AR, the issue stand remitted back to the file of Ld. AO for re-adjudication - The ground stand allowed for statistical purposes. Addition u/s 28(iv) - AR has pleaded to admission of additional evidences in terms of Rule 29 of the Income Tax Tribunal Rules, 1963 vide application dated 18/09/2018 - Held that - These evidences are in the shape of ledger accounts of the four sundry creditors to demonstrate that the liabilities have subsequently been discharged by the assessee by way of bank payments. These evidences, if found authenticated and admissible, would run contrary to the findings of Ld. AO. Therefore, while admitting the same, this issue is also restored to the file of Ld. AO for adjudication in the light of additional evidences submitted before us. The requisite information / explanation /other evidences, in this regard, shall be adduced by the assessee before Ld. AO. - Ground allowed for statistical purposes.

Summary

Issues:
1. Reopening of assessment for AY 2009-10
2. Addition on account of alleged bogus purchases for AY 2009-10
3. Confirmation of additions for AY 2011-12: Commission Expenditure and Disallowance u/s 28(iv)

Reopening of assessment for AY 2009-10:
The appeal contested the reopening of assessment u/s 148 of the Income-Tax Act, 1961. The reassessment proceedings were initiated based on information from the Sales Tax Department, Maharashtra regarding alleged bogus purchases. Despite efforts to substantiate the purchases, the assessee failed to provide conclusive evidence, leading to the disallowance of purchases by the AO. The CIT(A) upheld the AO's decision, which was further contested in the appeal. The Tribunal found that the assessee could not substantiate the purchases adequately, leading to doubts about the claim. Consequently, an estimated profit element of 12.5% of the alleged bogus purchases was added to the income, amounting to Rs. 8.25 Lacs, while the remaining additions were deleted.

Addition on account of alleged bogus purchases for AY 2009-10:
The assessment for AY 2009-10 involved alleged bogus purchases amounting to Rs. 65.99 Lacs. The reassessment proceedings were initiated based on information received from the Sales Tax Department. Despite efforts to substantiate the purchases, the assessee failed to provide conclusive evidence, leading to the disallowance of purchases by the AO. The CIT(A) confirmed the AO's decision. The Tribunal estimated a profit element of 12.5% of the alleged bogus purchases, amounting to Rs. 8.25 Lacs, to be added to the income, while deleting the remaining additions. The grounds of appeal were partly allowed in favor of the assessee.

Confirmation of additions for AY 2011-12: Commission Expenditure and Disallowance u/s 28(iv):
The appeal for AY 2011-12 contested the confirmation of additions related to Commission Expenditure and Disallowance u/s 28(iv). The Commission Expenditure of Rs. 5.84 Lacs was claimed as payment to an entity for professional services, but the AO disallowed it, stating no possibility of commission payments. The Tribunal remitted this issue back to the AO for re-adjudication based on the submissions made by the assessee. The Disallowance u/s 28(iv) was based on discrepancies in closing balances against Sundry Creditors. The Tribunal allowed the admission of additional evidence and restored this issue to the AO for further adjudication. The appeal for AY 2011-12 was allowed for statistical purposes.

In conclusion, the Tribunal partially allowed the appeal for AY 2009-10 and allowed the appeal for AY 2011-12 for statistical purposes. The judgment provided detailed analysis and decisions on each issue raised by the assessee, addressing the legal and factual aspects of the case comprehensively.