2018 (12) TMI 815 - AT - Income Tax

Disallowance of alleged bogus the purchases - CIT-A retained to the extent of 14.84% i.e. to the extent of GP - Held that - The sales turnover achieved by the assessee has not been disputed by the revenue and the payments to suppliers were through banking channels. The assessee was in possession of primary purchases documents. The survey proceedings casted serious doubts on the purchases transactions being carried out by the assessee. The key personnel, during survey proceedings, admitted discrepancies in the purchase transactions. The notices u/s 133(6) issued to all the suppliers elicited no response and the spot verification revealed that none of the supplier existed at the given address. All these factors cast serious doubts on assessee s claim. Both the lower authorities, in our opinion, clinched the issue in the proper perspective and proceeded to make estimation against the same. Considering the nature of assessee s business, the estimation, in our opinion, was on the higher side. Upon perusal of appellate orders for AYs 2009-10 & 2010-11 in assessee s own case, we find that the Ld. first appellate authority has adopted a uniform rate of 7% while estimating such additions for all the group concerns. Keeping in view the same, we reduce the estimated additions to 7% of alleged bogus purchases.

Summary

Issues:
- Disallowance of alleged bogus purchases
- Estimation of additions against suspicious purchases

Issue 1: Disallowance of alleged bogus purchases
The appeals by separate assessees contest separate orders of the first appellate authority, but due to similar facts and belonging to the same group, they are disposed of by a common order. The concerned assessee for Assessment Year 2011-12 challenges the order of the Commissioner of Income-Tax (Appeals) directing the retention of disallowance of alleged bogus purchases to the extent of 14.84%. The assessee, a resident firm engaged in infrastructure projects, was part of a group that obtained accommodation purchase bills from hawala dealers, leading to inflated expenses. Key persons admitted discrepancies in purchase transactions, although one retracted the statement. The AO estimated additions against these purchases at 18%, resulting in an addition of ?26,20,522. The CIT(A) reduced the estimated addition to 14.84% based on judicial pronouncements, which the assessee further appealed.

Issue 2: Estimation of additions against suspicious purchases
The assessee reflected purchases from suspicious dealers, but notices to suppliers were returned unserved, and spot verifications revealed non-existent parties. The assessee defended the purchases by stating material utilization and backed by invoices and banking payments. However, the AO estimated additions at 22% against these purchases, amounting to ?32,02,860. The CIT(A) further reduced the estimated additions to 14.84%, considering the nature of the assessee's business and past orders applying a 7% rate. The ITAT modified the order, reducing the estimated additions to 7% of alleged bogus purchases, partly allowing the assessee's appeal.

Conclusion
Both appeals were partly allowed by reducing the estimated additions to 7% of the alleged bogus purchases, modifying the orders of the first appellate authority.