2022 (8) TMI 1289 - AT - Income Tax

Bogus purchases of material - HELD THAT - We are conscious of the fact that the additions made in the assessment of related party (Prajeshsinh I Parmar) are subject matter of appeal before ld CIT(A). Thus, we are restraining ourselves on making any observation on such transaction conducted through the impugned bank accounts. Estimation of income - assessee has shown gross profit @ 27.8% and net profit @ 3.98% on the turnover - We find that the assessing officer neither doubted the sale of the assessee nor rejected the books results. It is settled position under income tax proceedings that when the transaction of sale or purchases, if not fully verifiable or the mode of payment or physical delivery is doubted, only profit element of such transaction may be disallowed to avoid the possibility of revenue leakage of such transaction. As we have already taken a view that transaction through undisclosed bank accounts is the subject matter of appeal which is still to be adjudicated Facts remained the same that the time and manner of certain payment against the purchases of material is not far from doubt. Therefore, we deem it appropriate to disturb the book result of the assessee and to avoid the possibility of revenue leakage the net profit (NP) ratio of assessee is estimated @ 6 % of turnover in place of 3.98% as declared by assessee. In the result, the grounds of appeal raised by the assessee is partly allowed.

Summary

Issues:
1. Condonation of delay in filing appeal.
2. Treatment of material purchases as bogus.
3. Addition of Rs. 17,92,880/- to income.
4. Reopening of the case under Section 147.
5. Disallowance of purchases made from unregistered dealers.

Issue 1: Condonation of delay in filing appeal
The appeal was filed with a delay of 29 days. The appellant, a senior citizen, cited health issues during the second wave of the Covid-19 pandemic as the reason for the delay. The authorized representative emphasized that the delay was unintentional and requested condonation. The senior departmental representative did not oppose the plea. The Tribunal considered the circumstances, including the pandemic situation, and granted condonation, admitting the appeal for hearing on merit.

Issue 2: Treatment of material purchases as bogus
The Assessing Officer noted that the appellant issued cheques against purchases mostly at the end of the year and sought details which were not furnished. Subsequently, the Officer treated the suppliers as bogus and made an addition of Rs. 17,92,880/- as bogus purchases. The appellant contended that purchases were made from unregistered dealers and provided bills and vouchers. However, the NFAC upheld the addition, considering the appellant's son's involvement in presenting cheques for encashment.

Issue 3: Addition of Rs. 17,92,880/- to income
The Tribunal observed that the assessing officer made the disallowance based on the appellant's son's involvement in presenting cheques for purchases. The Tribunal noted that a similar addition was made in the son's assessment. Given the related party transaction and pending appeal in the son's case, the Tribunal refrained from making any observation on the transaction conducted through the impugned bank accounts.

Issue 4: Reopening of the case under Section 147
The case was reopened under Section 147, with the Assessing Officer recording reasons for treating certain suppliers as fabricated/bogus. The appellant contended that the case of the supplier, who was the appellant's son, was also reopened, leading to a double addition of the same transaction. The Tribunal acknowledged the related party transaction but refrained from commenting on it pending adjudication.

Issue 5: Disallowance of purchases made from unregistered dealers
The assessing officer disallowed purchases made from unregistered dealers, suspecting fictitious suppliers. The NFAC upheld the disallowance, considering the involvement of the appellant's son in presenting cheques for such transactions. The Tribunal partially allowed the appeal, adjusting the net profit ratio to 6% of turnover instead of the declared 3.98%.

In conclusion, the Tribunal partly allowed the appeal, considering the related party transactions, the delay in filing, and the disallowance of purchases made from unregistered dealers.