2019 (1) TMI 793 - AT - Income Tax

Addition on account of the bogus purchases - 3% of GP addition on account of bogus purchases - Held that - The sales of the assessee have been accepted by the Department. Without purchases, there cannot be sales. Thus, entire alleged bogus purchases cannot be added in the hands of the assessee. Under such circumstances, the possibility of assessee purchasing the goods from grey market and procuring bills from the Hawala dealers cannot be ruled out. The CIT(A) after considering catena of judgments on various facets including the GP ratio to be applied in different set of industries estimated 3% of GP addition on account of bogus purchases in the hands of the assessee. We find the impugned order is reasoned and hence, requires no interference. Taking into consideration entirety of facts, the impugned order is upheld.

Summary

Issues:
Addition on account of bogus purchases

Analysis:
The appeal by the Revenue challenged the order restricting the addition on account of bogus purchases to 3% of the total bogus purchases for the assessment year 2009-10. The assessee, engaged in trading, declared total business income of ?3,10,520. The Assessing Officer reopened the assessment based on information from the Sales Tax Department regarding alleged bogus purchases from Hawala operators. The Assessing Officer held that the assessee indulged in bogus purchases amounting to ?2,78,55,984 from various parties. The assessment order made an addition of the entire amount as bogus purchases. The CIT(A) restricted the addition to ?8,35,680 (3% of total bogus purchases). The Revenue appealed against the deletion of the addition, while the assessee filed Cross Objections against the confirmation of the 3% addition.

The Department argued that the CIT(A) erred in granting relief without considering that the assessee failed to provide evidence substantiating the purchases from Hawala operators. Information from the Sales Tax Department and affidavits of sellers confirmed no actual purchases. The Department contended that the entire bogus purchases were rightly added, alleging the assessee used accommodation entries to reduce profits. On the other hand, the assessee argued that complete books were furnished during scrutiny assessment, which were not doubted by the Assessing Officer. The assessee maintained that all supporting documents for goods purchases were provided, questioning the necessity of any addition.

The Tribunal noted the issue of addition on account of bogus purchases. The CIT(A) restricted the addition to 3% of alleged purchases due to the assessee's failure to produce documentary evidence like receipts and weighment slips. The Tribunal observed that the sales were not doubted, indicating purchases were necessary for sales. Considering the lack of evidence on goods movement and acceptance of sales, the Tribunal upheld the CIT(A)'s decision. The appeal of the Revenue and Cross Objections by the assessee were dismissed for lack of merit.

In conclusion, the Tribunal upheld the CIT(A)'s decision to restrict the addition on account of bogus purchases to 3% of the total amount. The appeal by the Revenue and Cross Objections by the assessee were dismissed, affirming the reasoning behind the decision.