2018 (11) TMI 1317 - AT - Income Tax

Bogus purchases - Held that - If two views are possible, one in favour of the assessee has to be adopted. Hence, we uphold the view of the CIT(A) for A.Y. 2010-11 to be applicable in assessee s case for other year also. Hence, we direct that addition be made @ 6.5% of bogus purchase for all the years. Moreover,the assessee fairly admitted that 6.5% disallowance would meet the end of justice.

Summary

Issues:
Validity of reopening and disallowance of bogus purchases

Analysis:
1. The appeals by the assessee challenged the orders of the ld. Commissioner of Income Tax (Appeals) regarding the assessment years 2009-10, 2010-11 & 2011-12, focusing on the validity of reopening and sustaining disallowance of bogus purchases.

2. The Assessing Officer (AO) received information that the assessee had taken accommodation bills for purchases from parties declared as hawala operators by the Maharashtra Sales Tax Department. The AO found that purchases amounting to a significant sum were made from parties listed as suspicious dealers by the Sales Tax Department, engaged in issuing bogus bills without actual delivery of goods.

3. During reassessment, the AO conducted inquiries to verify the genuineness of the purchases. The assessee failed to provide substantial evidence such as delivery challans or transportation details to support the purchases made from the suspicious parties. The AO, based on tangible information, reopened the assessment.

4. The ld. CIT(A) upheld the AO's decision to disallow a percentage of the bogus purchases for each assessment year. The ITAT, after hearing both parties, found credible information supporting the AO's belief that the assessee benefited from bogus purchase entries, justifying the reopening of assessment.

5. The ITAT emphasized the need for a prima facie belief based on tangible material for income escapement, citing the Supreme Court's decision in CIT(A) Vs. Rajesh Jhaveri Stock Brokers P. Ltd. The tribunal noted the lack of evidence from the assessee to prove the genuineness of purchases and the non-existence of the suppliers, as confirmed by the Sales Tax Department's inquiries.

6. Referring to relevant case laws, the ITAT held that the assessee's reliance on produced documents alone without proving the existence of suppliers was unsustainable. The tribunal also considered a High Court decision upholding 100% allowance for bogus purchases in specific circumstances, which were not fully applicable in the present case.

7. The ITAT, while acknowledging a different High Court decision on bogus purchases, upheld the relief granted by the ld. CIT(A) to the assessee for consistency. The tribunal directed a 6.5% disallowance of bogus purchases for all years, considering the fairness to the assessee and settled legal principles.

8. Consequently, the ITAT dismissed the appeals for the assessment year 2010-11 and partly allowed the appeals for the years 2009-10 and 2011-12, maintaining the disallowance at 6.5% for all years based on the available evidence and legal precedents.

This detailed analysis covers the issues of the validity of reopening and disallowance of bogus purchases, providing a comprehensive understanding of the judgment delivered by the ITAT Mumbai.