2022 (6) TMI 67 - AT - Income Tax

Bogus purchases - addition made towards entire bogus purchase - claim that only GP at the rate of 3.15% only is to be added as income in the hands of the assessee - HELD THAT - There was categorical direction given to the assessee to produce three parties (brokers) before the AO to prove genuineness of the transaction and also cross-examine the parties. Pursuant to the direction, the AO has given four opportunities to prove the case, and also issued summons calling upon three parties before him; but notices were remained unanswered on the ground that postal authorities returned the same with remark not known or un-sufficient address . When the assessee was requested to produce three parties, the assessee was unable to produce them, but only filed a letter. Assessee has not filed required evidences viz. return of income filed by the broker, bank statements and any other evidences before the Ld. AO. In the absence of the above details, the AO has confirmed the addition and treated the same as bogus purchase. Even during the appellate proceedings, the assessee could not be able to establish the same. From the reading of the assessment order, it is clear that the assessee was given opportunity to prove genuineness of the transaction even in the original assessment proceedings, which were completed on 24.12.2010. Further, the assessee pleaded before this Tribunal in the first round of appeal that he could not produce three parties as well as evidences before the AO. For this reason only, Co-ordinate Bench of this Tribunal had set aside the matter back to the file of the AO for one more opportunity. Now, the assessee simply claims that since the transactions were of more than ten years old, it could not produce three parties before the AO. Assessee has literally wasted precious time of the AO by once again issuing notices and summons to the third parties and at the end of the proceedings, the assessee expressed inability to prove before the AO the genuineness of the transactions. Thus, both the AO and the CIT(A) have given clear cut finding that the assessee could not able to prove the purchases as genuine, and therefore, grounds of appeal raised by the assessee in the written submissions are hereby rejected, and the appeal filed by the assessee are hereby dismissed. The orders passed by the lower authorities do not require any interference. - Appeal of assessee dismissed.

Issues Involved:

1. Treatment of purchases amounting to Rs. 29,97,477/- as unproved/bogus.
2. Treatment of the entire purchases of Rs. 29,97,477/- as bogus and their addition as income.
3. Reduction from sales in respect of the purchases mentioned above.

Detailed Analysis:

Issue 1: Treatment of Purchases as Unproved/Bogus

The assessee's appeal arises from an order dated 19.11.2019 by the Commissioner of Income Tax (Appeals)-8, Ahmedabad, for the assessment year 2008-09. This is the second round of appeal. Initially, the ITAT, Mumbai Bench 'F', restored the issue of disallowance under section 14A and the issue of unproved bogus purchases amounting to Rs. 29,97,477/- after directing the examination of three parties: Ashirwad Broker, Lalitbhai Dalai, and Madhav Broker, and allowing the assessee to cross-examine them. The AO issued a notice under section 142(1) of the Act to call for details of these parties, but the assessee failed to provide new evidence or produce these parties. Summons issued to the parties were returned unserved, and the assessee's repeated requests for adjournments did not result in any new information or the production of the parties. Consequently, the AO concluded that the purchases from these parties were unproved and bogus.

Issue 2: Treatment of Entire Purchases as Bogus and Their Addition as Income

The CIT(A) upheld the AO's decision, noting that the assessee could not prove the genuineness of the purchases amounting to Rs. 29,97,477/-. The assessee's alternative plea to add only the Gross Profit (GP) rate of 3.15% was rejected. The CIT(A) cited the jurisdictional High Court's decision in N.K. Industries Ltd. vs. DCIT, which held that entire bogus purchases should be disallowed when the assessee debits bogus purchases to reduce its profit. The Tribunal in Vijay Proteins Ltd. had directed restricting the addition to 25% of the total purchases, but the High Court held that taxing only a portion of the bogus claims goes against Sections 68 and 69C of the Income Tax Act. The Supreme Court dismissed the SLP against this judgment, reinforcing the disallowance of entire bogus purchases.

Issue 3: Reduction from Sales in Respect of the Purchases

The assessee argued for a reduction from sales corresponding to the disallowed purchases. However, the Tribunal found this contention conceptually flawed. The Revenue's case was that the bogus purchases were introduced to suppress profits, implying that goods corresponding to these purchases never entered the assessee's business. Thus, there was no impact on sales, and the question of reducing sales did not arise. The Tribunal also noted that the assessee failed to provide any quantitative tally between the impugned purchases and corresponding sales.

Conclusion:

The Tribunal reviewed the records and submissions from both parties. Despite multiple opportunities, the assessee failed to produce the three brokers or provide necessary evidence to prove the genuineness of the transactions. The Tribunal found that the assessee wasted the AO's time and failed to comply with the ITAT's directions. Consequently, the Tribunal upheld the findings of the AO and CIT(A) that the purchases were bogus and dismissed the assessee's appeal, affirming the disallowance of Rs. 29,97,477/- as unproved/bogus purchases. The appeal was dismissed, and the orders of the lower authorities were upheld.

Order Pronounced:

The appeal of the assessee was dismissed, and the order was pronounced in the Court on 13th May, 2022, at Ahmedabad.

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