2019 (11) TMI 596 - AT - Income Tax

Income surrendered in the return of income filed u/s.153A - survey u/s.133A - bogus purchases - statement of the assessee made u/s 132(4) - HELD THAT - Assessee cannot run away from his statement of recording bogus purchase bills, but can prove legally that the entire amount of bills should not be legally added. Therefore, the contention of the DR that once the assessee had admitted in his statement u/s 132(4) to the effect that there was no proper evidence of the genuineness of the bills of purchase of steel and offered the equal amount for taxation, then he cannot take a contrary stand in the assessment proceedings, is countenanced only to the extent of non-genuineness of the bills of purchase of steel but not to the extent of offering equal amount for taxation, which would be separately examined as per the provisions of law. DR has raised one more preliminary issue to the effect that income once included by the assessee in his return of income binds him and hence the assessee cannot claim for its exclusion. This contention has no legal legs to stand on and is liable to be rejected - even if the assessee wrongly includes certain income in his return, which is otherwise not chargeable to tax, he has a right to lodge a claim before the AO in this regard during the course of assessment proceedings. As the assessee in the instant case has challenged the suo motu inclusion of such an income before the AO, we do not find any fetters on the powers of the AO in not examining if the same is actually liable to be fully or partly included in the total income. The contention raised by the DR in this regard is, therefore, jettisoned. Coming to the merits of the case, it is seen that the assessee recorded the alleged tainted purchases of steel amounting to ₹ 99,41,075/- in his books of account for the year under consideration. The assessee is engaged in the business of manufacture of sugar machinery. Steel is a raw material for the manufacturing of the machinery. It is obvious that without raw material there cannot be any finished products. The assessee has filed stock details before the authorities which show that purchases for the disputed quantity were, in fact, made. The fact that the assessee made genuine sales, has not been disputed by the Revenue. In such a scenario, even if we accept the contention of the Revenue that the purchases were bogus, still the entire amount of purchases cannot be added in view of the fact that some purchases must have, in fact, been made which got eventually consumed in the process of manufacturing. This evidences that the assessee made some cheaper purchases of steel, but obtained bogus purchase bills of higher value so as to inflate the expenses and reduce the profit. In such circumstances, only the profit (excessive cost element) embedded in such bogus purchases can be included in the total income of the assessee, which, in the peculiar facts and circumstances of the instant case, is estimated at 10% of the bill amounts. Our view in estimating the net profit rate @10% of bogus purchases is fortified by the judgment of the hon ble jurisdictional High Court in Pr. CIT Vs. Paramshakti Distributors Pvt. Ltd. 2019 (7) TMI 838 - BOMBAY HIGH COURT in which addition at the rate of 10% of bogus purchases has been held to be sustainable in similar circumstances. To sum up, the assessee gets relief by means of deletion of addition of 90% - Decided partly in favour of assessee.

Issues Involved:
1. Legitimacy of the assessee's purchases and the corresponding addition to income.
2. The assessee's right to retract a statement made under section 132(4) of the Income-tax Act, 1961.
3. The extent to which the assessee's self-admission of bogus purchases can be legally binding.
4. The appropriate percentage of profit to be added to the income based on the bogus purchases.

Detailed Analysis:

Legitimacy of the Assessee's Purchases:
The case revolves around a search and seizure action under section 132 of the Income-tax Act, 1961, which revealed that the assessee was inflating expenses by recording bogus steel purchase bills from non-existent Mumbai-based parties. The assessee admitted to the disallowance of expenses amounting to ?36,01,34,587 over the years and agreed to offer the same as additional income. The Assessing Officer (AO) added ?99,41,075 to the income for A.Y. 2007-08, rejecting the assessee's claim that the purchases were genuine.

The Assessee's Right to Retract a Statement:
The Tribunal noted that statements made under section 132(4) can be used as evidence in assessment proceedings. However, it distinguished between factual statements and legal consequences of such statements. While the factual admission of recording bogus bills is binding, the legal consequence, i.e., the addition of the entire amount of bogus purchases to income, must be examined independently according to the law.

Legal Binding of Self-Admission:
The Tribunal emphasized that there can be no estoppel against the provisions of the Act. If an assessee makes a self-adverse legal statement under section 132(4), it must be tested on legal principles. The Tribunal cited precedents and departmental circulars to assert that even if an assessee includes certain income in his return, which is not chargeable to tax, he has the right to lodge a claim for its exclusion during assessment proceedings.

Appropriate Percentage of Profit Addition:
The Tribunal concluded that only the profit element embedded in the bogus purchases should be added to the income. It estimated this profit element at 10% of the bogus purchase amounts, citing the jurisdictional High Court's judgment in a similar case (Pr. CIT Vs. Paramshakti Distributors Pvt. Ltd.). For A.Y. 2007-08, the Tribunal sustained an addition of ?9,94,107 (10% of ?99,41,075). Similar adjustments were made for subsequent years (A.Y. 2008-09 to 2012-13), with the addition being 10% of the bogus purchases.

Conclusion:
The Tribunal allowed the appeals partly, directing the deletion of 90% of the amounts of bogus purchase bills while sustaining the addition of 10% as the profit element. The assessee's additional grounds were not pressed and thus dismissed. The Tribunal's order reinforced the principle that while factual admissions under section 132(4) are binding, the legal consequences must adhere to the law.

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