2022 (4) TMI 230 - AT - Income Tax

Estimation of income - Bogus purchases - HELD THAT - In the present case, the purchases were held to be bogus as the same were made from open/grey market, sales have been accepted by the AO and the CIT(A) has, returned a finding that the Assessee has been able to explain the source of expenditure from his bank account statement, purchase invoices and payments made through cheques. In view of the above, we see no reasons to take any other view of the matter than the view so taken by the Co-ordinate Benches of the Tribunal. We hold that in the facts of the present case entire amount purchases cannot be brought to tax. CIT(A) has confirmed addition to the extent 10% of bogus purchases which is in addition to profits already offered by the Assessee to tax. We see no infirmity in the order passed by CIT(A) and decline to interfere in the matter. - Decided against revenue.

Issues Involved:
1. Restriction of addition to 10% of bogus purchases by CIT(A).
2. Consideration of information from Sales Tax Department regarding bogus purchases.
3. Admission by hawala dealers about not selling any material.
4. Assessee's failure to prove genuineness and creditworthiness of purchase transactions.
5. Applicability of the Supreme Court decision in N.K. Proteins v DCIT.
6. Request to set aside CIT(A) order and restore AO's order.

Issue-wise Detailed Analysis:

1. Restriction of Addition to 10% of Bogus Purchases by CIT(A):
The Revenue challenged the CIT(A)'s decision to restrict the addition to 10% of the bogus purchases, arguing that the Assessing Officer (AO) had correctly made a 100% addition. The CIT(A) noted that there cannot be sales without corresponding purchases and emphasized that the AO had initially taxed the profit element related to suspicious purchases. The Tribunal upheld the CIT(A)'s decision, citing similar cases where only the profit element was added to income, not the entire purchase amount.

2. Consideration of Information from Sales Tax Department Regarding Bogus Purchases:
The AO received information from the Sales Tax Department indicating that the assessee had accepted bogus purchase bills. This led to the re-opening of the assessment and the addition of the entire amount of bogus purchases as unexplained expenditure under Section 69C of the Income Tax Act. The Tribunal acknowledged this information but focused on the profit element rather than the entire purchase amount.

3. Admission by Hawala Dealers About Not Selling Any Material:
The AO relied on statements from hawala dealers who admitted to not selling any material, which supported the conclusion that the purchases were bogus. However, the CIT(A) and the Tribunal considered the overall context, including the assessee's business operations and sales, to determine that only the profit element should be added to income.

4. Assessee's Failure to Prove Genuineness and Creditworthiness of Purchase Transactions:
The AO argued that the assessee failed to prove the genuineness and creditworthiness of the purchase transactions. The Tribunal noted that the assessee had provided bank statements, purchase invoices, and proof of payments made through cheques, which were considered sufficient to explain the source of expenditure.

5. Applicability of the Supreme Court Decision in N.K. Proteins v DCIT:
The Revenue cited the Supreme Court decision in N.K. Proteins v DCIT, which held that when transactions are found to be bogus, the entire amount should be disallowed. However, the Tribunal distinguished the present case from N.K. Proteins, noting that the purchases were made from the open/grey market with accommodation bills, and the sales were accepted by the AO. The Tribunal found that the CIT(A)'s approach of adding only the profit element was appropriate.

6. Request to Set Aside CIT(A) Order and Restore AO's Order:
The Revenue requested that the CIT(A)'s order be set aside and the AO's order be restored. The Tribunal, however, found no infirmity in the CIT(A)'s order and declined to interfere, thereby dismissing the Revenue's appeal.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to restrict the addition to 10% of the bogus purchases, emphasizing that only the profit element should be added to income. The Tribunal distinguished the present case from the Supreme Court's decision in N.K. Proteins and found that the CIT(A) had correctly considered the overall context, including the assessee's business operations and sales. The appeal filed by the Revenue was dismissed.

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