2022 (2) TMI 578 - AT - Income Tax

Addition of bogus purchases - CIT - A confirmed addition being 25% - HELD THAT - The books of account were also audited and auditors have not given any adverse remarks. All the payments have been made through banking channels. The assessee had produced the stock register showing relevant entries of the items purchased and issued for consumption in job work and the items were tallying and no discrepancy in the stock was found at the time of survey. Disallowance of 20% of the purchases appears to be on the higher side especially when some of the parties to whom letters were issued were served and the payments have been made through banking channel - disallowance of 2% of the total purchases under the facts and circumstances of the case, in our opinion, will meet the ends of justice. We hold and direct accordingly. The A.O. shall do the re-computation. Accordingly the order of the Ld. CIT(A) is modified on this issue and the grounds raised by the assessee on this issue are partly allowed. Addition on account of commission expenses - HELD THAT - Since we have held that entire purchases cannot be considered as bogus since the sales have not been disturbed and some of the parties to whom letters were issued are existing in the given address and no discrepancy was found in the stock at the time of survey and the stock register was tallying with quantitative details, therefore, estimation of commission for the entire purchases, in our opinion, is not justified. At the same time, the conduct of the assessee is not above board. Considering the totality of the facts and circumstances of the case, we are of the considered opinion that lump sum addition of ₹ 50,000/- on estimate basis under the facts and circumstances of the instant case will meet the ends of justice. We hold and direct accordingly. Grounds of appeal number.9 of the assessee is accordingly partly allowed. Addition u/s 69C on account of unexplained expenditure - It is the submission for the Assessee that benefit of telescoping should be available to the assessee on account of addition, if any, in the case of other group concerns as a whole - HELD THAT - The plea of the assessee, in our opinion, is not acceptable. The assessee can get the telescoping benefit for addition on account of bogus purchases in his case only and cannot get the telescoping benefit on account of the cash generated out of such bogus purchases in other group concerns for meeting the expenditure towards acquisition of gold coins amounting to ₹ 6,41,725/- for this year. The ground raised by the assessee is accordingly partly allowed for statistical purposes.

Issues Involved:
1. Validity of assessment under section 153A of the I.T. Act, 1961.
2. Addition on account of bogus purchases.
3. Addition on account of commission expenses.
4. Telescoping benefit of commission expenses.
5. Addition under section 69C of the I.T. Act, 1961 for unexplained expenditure.

Issue-wise Detailed Analysis:

1. Validity of Assessment under Section 153A of the I.T. Act, 1961:
The assessee challenged the validity of the assessment under section 153A in the absence of any incriminating material. The Ld. CIT(A) rejected this contention, citing statements from Ms. Jyoti Bisht and Shri Vishnu Kumar Garg, which indicated that the companies from whom purchases were shown had been used for procuring bogus bills. The Tribunal upheld the assessment under section 153A, noting that there was incriminating material related to the impugned additions.

2. Addition on Account of Bogus Purchases:
The A.O. made an addition of ?47,60,957/- being 25% of the purchases of ?1,90,43,829/- from identified accommodation entry providers. The Ld. CIT(A) restricted the disallowance to 20% for parties that were located at the given address and 25% for those that were not. The Tribunal found that the disallowance of 20% was on the higher side, considering the sales were not disturbed, books of account were audited, and payments were made through banking channels. The Tribunal directed the A.O. to disallow 2% of the total purchases, modifying the order of the Ld. CIT(A).

3. Addition on Account of Commission Expenses:
The A.O. made an addition of ?1,04,741/- being commission @ 0.55% on the bogus purchases. The Ld. CIT(A) sustained this addition. The Tribunal, however, held that since the entire purchases could not be considered bogus and some parties were found to exist, the estimation of commission for the entire purchases was not justified. The Tribunal directed a lump sum addition of ?50,000/- on an estimate basis, modifying the order of the Ld. CIT(A).

4. Telescoping Benefit of Commission Expenses:
The assessee argued for telescoping the addition on account of commission expenses against the addition on account of bogus purchases. The Tribunal accepted this argument, directing the A.O. to allow the benefit of telescoping, noting that 3% of the total purchases were bogus, amounting to ?5,71,314/-. This amount should be used to meet the expenses towards commission.

5. Addition under Section 69C of the I.T. Act, 1961 for Unexplained Expenditure:
The A.O. made an addition of ?6,41,725/- for unexplained expenditure on the purchase of gold coins. The Ld. CIT(A) upheld this addition but allowed the benefit of telescoping from the addition made on account of bogus purchases in the A.Y. 2011-2012. The Tribunal agreed with the Ld. CIT(A) but clarified that the benefit of telescoping could only be applied to the assessee's case and not to other group concerns. The ground was partly allowed for statistical purposes.

Conclusion:
The Tribunal partly allowed the assessee's appeals, modifying the disallowance on bogus purchases to 2% and directing a lump sum addition for commission expenses. The benefit of telescoping was allowed for the addition on account of bogus purchases to meet the commission expenses. The addition under section 69C was upheld with the condition of telescoping from the addition made on account of bogus purchases in the same assessment year.

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