2019 (7) TMI 980 - AT - Income Tax

Disallowance of bogus purchases - allegation that purchases are from group of concerns operating at Mumbai providing Tax paid bills and collecting payment through cheque and banking channels after payment of commission of its services charges and there is no actual delivery of goods - HELD THAT - We find that the books of accounts regularly maintained by the assessee including quantitative details have not been rejected by the A.O u/s 145 except the alleged purchases. No other major discrepancy have been noticed in the books. Books of accounts are duly audited. Sales made by the assessee are not in dispute. The assessee is into the business since many years and is consistently showing the gross profit and net profit. Alleged supplier of goods are duly registered under Value Added Tax Act. Payment made through banking channel. Quantity maintained in the alleged bills are part of quantitative records maintained by the assessee. There is no drastic change in the gross profit and net profit rate. Since the sales have not been doubted there ought to be corresponding purchases. However some of the ingredients for testing the genuineness of purchases are missing but for this reason itself total purchase cannot be disallowed else abnormal and distorted profits will appear in the profit and loss account. We find that similar issue has came up before the Co-ordinate Bench in the case of V.R. Enterprises V/s ITO 2019 (6) TMI 1080 - ITAT MUMBAI and PCIT V/s Mohommad Haji Adam Co 2019 (2) TMI 1632 - BOMBAY HIGH COURT also estimated the addition for alleged various purchases @12.5% being the profit element. No inconsistency in the well reasoned finding of CIT(A) confirming the disallowance of purchases at 12.5% of the alleged bogus purchases. No interference is therefore called for in the finding of CIT(A). Sole ground raised by the revenue stands dismissed. In the result appeal of the Revenue stands dismissed.

Issues Involved:

1. Condonation of delay in filing Cross Objections by the assessee.
2. Disallowance of bogus purchases by the Revenue.
3. Justification of the Ld. CIT(A)'s decision to restrict the disallowance to 12.5% of the alleged bogus purchases.
4. Revenue’s appeal against the Ld. CIT(A)'s decision.
5. Assessee's Cross Objections challenging the disallowance sustained by Ld. CIT(A).

Detailed Analysis:

1. Condonation of Delay in Filing Cross Objections:

The Tribunal condoned the delay of 280 days in filing the Cross Objections by the assessee, considering it occurred due to a reasonable cause. This decision was made in the interest of justice, allowing the Cross Objections to be adjudicated on merits.

2. Disallowance of Bogus Purchases by the Revenue:

The Revenue challenged the Ld. CIT(A)'s decision to restrict the disallowance of bogus purchases to ?5,49,177/- for the Assessment Year 2009-10 and ?4,12,550/- for the Assessment Year 2010-11. The original additions made by the Assessing Officer (A.O) were ?62,50,997/- and ?38,61,472/- respectively. The A.O had treated purchases from certain suppliers as bogus, adding the entire amount to the assessee's income.

3. Justification of the Ld. CIT(A)'s Decision:

The Ld. CIT(A) restricted the disallowance to 12.5% of the alleged bogus purchases, considering it as the estimated profit embedded in the disputed transactions. This decision was based on the judgment of the Hon'ble Gujarat High Court in CIT vs. Simit P. Sheth. The Ld. CIT(A) observed that the A.O neither rejected the books of accounts nor challenged the sales. The purchases were supported by proper invoices, payments were made through banking channels, and the quantitative details were maintained.

4. Revenue’s Appeal Against the Ld. CIT(A)'s Decision:

The Revenue's appeal contested the Ld. CIT(A)'s decision to restrict the disallowance. The Departmental Representative argued that the alleged purchases were from concerns providing tax-paid bills without actual delivery of goods. The Tribunal, however, upheld the Ld. CIT(A)'s decision, noting that the books of accounts were audited, sales were not disputed, and the assessee maintained quantitative records. The Tribunal found no inconsistency in the Ld. CIT(A)'s well-reasoned finding and dismissed the Revenue's appeal for both Assessment Years 2009-10 and 2010-11.

5. Assessee's Cross Objections:

The assessee filed Cross Objections challenging the disallowance sustained by the Ld. CIT(A) at 12.5% of the alleged bogus purchases. The Tribunal dismissed these Cross Objections, reaffirming its decision to uphold the Ld. CIT(A)'s finding. The Tribunal concluded that the disallowance at 12.5% was appropriate, considering the facts and circumstances of the case.

Conclusion:

The Tribunal dismissed both the appeals of the Revenue and the Cross Objections of the assessee for Assessment Years 2009-10 and 2010-11. The order was pronounced in the open Court on 16.07.2019.

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