2019 (4) TMI 1153 - AT - Income Tax

Condonation of delay - HELD THAT - Hon'ble Supreme Court in the case of Vedabai Alia Vaijayanatabai Baburao Patil vs. Shantaram Baburao Patil 2001 (7) TMI 117 - SUPREME COURT held that the court has to exercise the discretion on the facts of each case keeping in mind that in construing the expression sufficient cause , the principle of advancing substantial justice is of prime importance. The court held that the expression sufficient cause should receive liberal construction. The circumstances narrated by the assessee, wherein, he has stated the reasons which caused the delay, therefore, the delay is condoned. Disallowance @ 20% of the bogus purchases - HELD THAT - The assessee claim to have made purchases of ₹ 38,62,915/- (Assessment Year 2010-11) from the Hawala Parties mentioned in the assessment order. The Sales Tax Department carried out independent enquiries, wherein, conclusively proved that the parties were engaged in the business of providing accommodation entries without actual delivery of goods. The stand of the assessee before the AO as well as before the CIT (Appeal) is that the goods were consumed in the manufacturing process. Considering the suppressed profit to the tune of the ₹ 7,72,583/- (being 20% of purchases of ₹ 38,62,915) for Assessment Year 2010-11 and ₹ 8,86,064/- (being 20% of bogus purchases of ₹ 44,30,321/-) for Assessment Year 2009- 10, the addition was made. Admittedly, there cannot be sale without purchases or manufacturing without consumption but at the same time, the assessee being a manufacturer has to prove the consumption. The assessee has intentionally inflated the value of purchases by taking accommodation bills to reduced the gross profit and thereby reduced the taxable income. Thus the appeals of the assessee having no merit, therefore, dismissed.

Summary

Issues Involved:
1. Condonation of Delay in Filing Appeal
2. Disallowance of Bogus Purchases

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing Appeal:
The assessee filed an application for condonation of delay of 232 days, supported by an affidavit. The Revenue opposed the condonation, arguing that the assessee must explain the delay for each day. The Tribunal emphasized that filing an appeal is a statutory right but not an automatic privilege, requiring vigilance from the assessee. However, the Tribunal adopted a liberal approach, citing the Supreme Court's stance in cases like *Collector, Land Acquisition vs Mst. Katiji & Ors.* and *Vedabhai vs Santaram*, which advocate for substantial justice over technicalities. The Tribunal noted that refusing to condone the delay could lead to a miscarriage of justice. The Tribunal referenced several precedents where substantial delays were condoned, supporting the assessee's case. Consequently, the Tribunal condoned the delay, finding the reasons bona fide and not due to negligence.

2. Disallowance of Bogus Purchases:
The core issue was the disallowance of 20% of the bogus purchases by the First Appellate Authority. The Tribunal reviewed various judicial decisions to reach a fair conclusion. The *Gujarat High Court in Sanjay Oilcakes Industries vs. CIT* upheld the disallowance of a portion of purchases when sellers were untraceable, indicating possible inflation of purchase prices. Similarly, in *CIT vs Bholanath Poly Fab. Pvt. Ltd.*, the court held that only the profit margin embedded in bogus purchases should be taxed, not the entire amount. The *Gujarat High Court in CIT vs Vijay M. Mistry Construction Ltd.* and *CIT vs Ashish International Ltd.* supported the view that disallowances based on estimates do not warrant interference unless there is substantial evidence of bogus transactions.

The Tribunal also considered the *Mumbai Bench decision in DCIT vs Rajeev G. Kalathil*, which highlighted that suspicion alone cannot replace concrete evidence. The Tribunal emphasized the importance of verifying the movement of goods and the genuineness of transactions. In the present case, the assessee was engaged in manufacturing and claimed that the goods were consumed in the manufacturing process. However, the Sales Tax Department's independent enquiries indicated that the parties were providing accommodation entries without actual delivery of goods. The Tribunal found that the assessee had inflated purchase values to reduce taxable income.

The Tribunal concluded that the disallowance made by the Assessing Officer and confirmed by the Commissioner of Income Tax (Appeal) was justified. The appeals of the assessee were dismissed, affirming the disallowance of 20% of the bogus purchases.

Final Judgment:
The appeals of the assessee were dismissed, and the disallowance of 20% of the bogus purchases was upheld. The Tribunal emphasized the importance of substantial justice and the necessity of concrete evidence in disallowing purchases. The judgment was pronounced in the open court on 08/01/2019.