2020 (6) TMI 23 - AT - Income Tax

Bogus purchases u/s 69C - CIT- A restricted addition to 5% - HELD THAT - Cash purchases from other parties though those were not recorded in the books of accounts otherwise the sales made could not have taken place. The assessee took bills only from the five parties as accommodation to explain such purchases. Having regard to the particular aspect of the matter when the appellant has already recorded a Gross Profit of 3.56% in his books and the sales has not been doubted, we find no ambiguity in restricting such disallowance to 5% of the alleged bogus purchases by the Ld. CIT(A) so as to warrant interference. We find no merit in the appeal preferred by the Revenue. The order is, therefore, passed in the affirmative i.e. in favour of the assessee and against the Revenue. Pronouncement of order after the expiry of 90 days from the date of conclusion of hearing - Covid 19 epidemic - world wide lockdown - HELD THAT - Period of lockdown cannot be treated as an ordinary period during which the normal time limits are to remain in force - Without the words ordinarily , in the light of the above analysis of the legal position, the period during which lockout was in force is to excluded for the purpose of time limits set out in rule 34(5) of the Appellate Tribunal Rules, 1963. Exception, to 90- day time-limit for pronouncement of orders, inherent in rule 34(5)(c), with respect to the pronouncement of orders within ninety days, clearly comes into play in the present case. Of course, there is no, and there cannot be any, bar on the discretion of the benches to refix the matters for clarifications because of considerable time lag between the point of time when the hearing is concluded and the point of time when the order thereon is being finalized, but then, in our considered view, no such exercise was required to be carried out on the facts of this case.

Issues Involved:
1. Legitimacy of reopening the assessment under Section 147 of the Income Tax Act, 1961.
2. Validity of disallowance of alleged bogus purchases.
3. Determination of the profit element embedded in the alleged bogus purchases.
4. Procedural issue regarding the pronouncement of the order beyond the 90-day period due to the Covid-19 pandemic.

Issue-wise Detailed Analysis:

1. Legitimacy of Reopening the Assessment:
The Revenue reopened the assessment under Section 147 of the Income Tax Act, 1961, based on information that the assessee indulged in accepting bogus entries for purchases amounting to ?1,57,03,048/-. The assessee objected to this reopening through a letter dated 06.01.2016, providing ledger copies, bills, and payment details made via account payee cheques. Despite these submissions, the Assessing Officer (AO) proceeded with the reopening, leading to a disallowance of ?7,22,128/- (12.5% of ?57,77,025/-) related to purchases from M/s. Prince Trading Company. The CIT(A) later reduced this disallowance to 5%, resulting in the Revenue's appeal.

2. Validity of Disallowance of Alleged Bogus Purchases:
The AO disallowed 12.5% of the purchases from M/s. Prince Trading Company, considering them inflated. The CIT(A) reduced this disallowance to 5%, noting that the purchases were genuine but included a profit element. The assessee argued that the purchases were made through banking transactions, and the goods were delivered, evidenced by invoices and VAT payments. The CIT(A) agreed that the entire purchase could not be disallowed and only the profit embedded in the doubtful transactions should be taxed, relying on precedents like Shri Madhukant B. Gandhi vs. ITO and CIT vs. Bholanath Poly Fab Pvt. Ltd.

3. Determination of the Profit Element Embedded in the Alleged Bogus Purchases:
The CIT(A) concluded that the assessee made genuine purchases but took accommodation bills from five parties to explain these purchases. The CIT(A) found no ambiguity in restricting the disallowance to 5% of the alleged bogus purchases, considering the assessee had already recorded a Gross Profit of 3.56% in his books and the sales were not doubted. The Tribunal upheld this view, finding no merit in the Revenue's appeal.

4. Procedural Issue Regarding Pronouncement of the Order:
The Tribunal addressed the procedural issue of pronouncing the order beyond the 90-day period due to the Covid-19 pandemic. It referred to the case of DCIT vs. JSW Ltd., explaining that the lockdown period should be excluded when computing the 90-day limit for pronouncement, as per Rule 34(5) of the Appellate Tribunal Rules, 1963. The Tribunal emphasized that the extraordinary circumstances of the pandemic justified this exclusion, aligning with the directives of the Hon’ble Supreme Court and Hon’ble Bombay High Court.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to restrict the disallowance to 5% of the alleged bogus purchases. The procedural issue regarding the delayed pronouncement was resolved by excluding the lockdown period, ensuring compliance with the Appellate Tribunal Rules, 1963. The order was pronounced in favor of the assessee, upholding the CIT(A)'s findings and dismissing the Revenue's contentions.

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