2020 (11) TMI 342 - AT - Income Tax

Bogus purchases - addition to 12.5% - HELD THAT - We find no reason to interfere with the order of Ld. first Appellate Authority. Evidently, the assessee was in possession of primary purchase documents and corresponding sales formed part of books of account. At the same time, notices issued u/s. 133(6) remained unserved and assessee failed to produce even a single party. Truly, there could not be any sale without actual purchase of material and therefore a presumption could be drawn that the material was purchased from the open market while invoices were procured from tainted suppliers. Therefore, estimating the additions @12.5% was quite fair and reasonable. Therefore finding no substance in the appeal, we dismiss the same.

Summary

Issues:
Appeal by revenue challenging CIT(A)'s order restricting addition on alleged bogus purchases to 12.5% of total purchases.

Analysis:
1. The appeal before ITAT Mumbai concerned the revenue contesting the order of the CIT(A) regarding the addition on account of alleged bogus purchases for Assessment Year 2009-10. The CIT(A) had restricted the addition to 12.5% of total bogus purchases amounting to ?52,97,038.

2. Despite the absence of the assessee during the hearing, the matter proceeded ex-parte as the material on record was deemed sufficient for the appeal's disposal. The Revenue, represented by the Ld. DR, advocated for the restoration of the additions made by the Assessing Officer (AO).

3. The assessee, a resident firm engaged in manufacturing conveyor belts, faced a substantial addition of ?42.53 lakhs due to alleged bogus purchases. This information stemmed from the Sales Tax Department of Maharashtra, revealing purchases of ?52.97 lakhs from four suspicious entities. Although the assessee provided bills, ledger accounts, and bank statements, the notices issued under section 133(6) to confirm transactions were unserved, leading to the conclusion that the assessee failed to prove the purchase transactions.

4. The CIT(A), citing the decision of the Hon'ble Gujarat High Court in a similar case, restricted the addition to 12.5% of aggregate purchases, partially allowing the appeal. Subsequently, the revenue appealed to the ITAT Mumbai. The assessee accepted the decision and did not pursue further appeal.

5. After a thorough review of the factual circumstances, the ITAT Mumbai found no grounds to interfere with the CIT(A)'s order. The assessee possessed primary purchase documents, and corresponding sales were recorded in the books of account. However, the failure to serve notices under section 133(6) and the inability to produce any party raised doubts. The ITAT inferred that purchases might have been made from the open market while invoices were obtained from dubious suppliers. Therefore, the estimation of additions at 12.5% was deemed reasonable and fair, leading to the dismissal of the appeal.

6. Ultimately, the ITAT Mumbai pronounced the order on 10th November 2020, dismissing the appeal by the revenue.