2024 (12) TMI 701 - AT - Income Tax

Estimation of income - bogus purchases - HELD THAT - The appellant failed to discharge its onus to prove genuineness of the subject purchase transactions, and rather the goods were received from the parties from whom same are shown to have been purchased. Furthermore, the assessee, on being confronted by GST authorities with the allegations levelled on the basis of information received, deposited by way of reversal, the ITC availed of on the basis of the invoices portrayed to have been issued by the abovesaid 2 entities. This goes to show that as a matter of fact, the goods were not received from the said 2 entities, but, were received from different source, exclusively to the knowledge of the assessee. Y 5 6U6CIT(A) upheld the reasons recorded by the AO. Having regard to the sale of the goods, which was not doubted by the authorities below, it is evident that the assessee inflated the expenditure in question by showing higher amount of purchase price through fictitious invoices in the names of the 2 entities bogus suppliers. As per settled law no sale of goods can take place without purchase, and in a case an assessee is found to have indulged into bogus purchases, a percentage of the bogus purchases can be added to arrive at the net income of the assessee-appellant. Taking into consideration aspect of inflation of purchases and saving of taxes, duties, compliance costs etc. by both buyer and seller etc., when we have not taken on record the documents sought to be produced for the first time in the course of hearing, for being considered on the aspect of percentage of bogus purchases of goods and/or Gross profit, in the interest of justice, we find it to be a fit case where matter needs to be remanded to the AO for the purposes of recalculations in view of the findings recorded above and having regard to the well settled law on the point of percentage of bogus purchases and/or Gross Profits of course, after providing opportunity to the assessee-appellant to produce there all the relevant and admissible material, in accordance with law. As a result, the appeal is disposed of, and the matter is remanded to the Assessing Officer for the purposes of recalculations in view of the findings recorded above and having regard to the well settled law on the point percentage of bogus purchases and/or Gross Profit of course, after providing opportunity to the assessee-appellant to produce there all the relevant and admissible material, in accordance with law, so as to enable the AO to give effect to the decision.

Issues Involved:

1. Legitimacy of the purchases claimed by the assessee and the application of Section 69C of the Income Tax Act.
2. Impact of non-supply of the statement of the partner of the assessee firm recorded by GST authorities.
3. Consequences of the assessee's reversal of Input Tax Credit (ITC).
4. The effect of non-response from the entities M/s. Shiv Agro Sales and M/s. Sweekar Udyog.
5. Consideration of the gross profit rate and the possibility of disallowance based on it.

Detailed Analysis:

1. Legitimacy of Purchases and Application of Section 69C:

The core issue revolved around the genuineness of the purchases claimed by the assessee from M/s Sweekar Udyog and M/s Shiv Agro Sales. The Assessing Officer (AO) invoked Section 69C of the Income Tax Act, adding unexplained expenditure to the income of the assessee, as the purchases were deemed out of books and unsupported by valid documentation. The AO's conclusion was based on the non-response to notices under Section 133(6) and the failure of the assessee to prove the genuineness of the transactions despite providing invoices, bank statements, and GST returns. The Tribunal upheld the AO's findings, emphasizing the lack of confirmation from the sellers and the assessee's inability to substantiate the purchases.

2. Non-Supply of Partner's Statement:

The assessee contended that the assessment order was flawed due to the non-supply of the statement made by its partner, Shri Rakesh Bansal, to the GST authorities. However, the Tribunal noted that the AO did not rely on this statement to draw conclusions in the reassessment proceedings. The Tribunal found no merit in the assessee's argument that the absence of the statement's copy denied them a reasonable opportunity to be heard, as the statement was not pivotal to the AO's decision.

3. Reversal of ITC:

The reversal of ITC by the assessee was a significant factor in the AO's decision. The Tribunal noted that the assessee had deposited Rs. 10,31,354/- by way of reversal of ITC, which corroborated the information that the ITC was wrongly availed based on invoices from fake firms. The Tribunal rejected the assessee's argument that the reversal was a voluntary action to rectify the suppliers' non-payment of tax, as no explanation was provided for the reversal at the time of deposit, indicating the invoices were indeed bogus.

4. Non-Response from Entities:

The non-response from M/s. Shiv Agro Sales and M/s. Sweekar Udyog to notices issued under Section 133(6) was another critical point. The Tribunal observed that the assessee failed to secure the presence of representatives from these entities to verify the transactions, despite being aware of their non-response. This failure further weakened the assessee's position regarding the genuineness of the transactions.

5. Gross Profit Rate Consideration:

The Tribunal considered the assessee's alternative plea to apply the gross profit rate for determining the disallowance. The Tribunal noted that while the sales were not disputed, the purchases were not verified, and the assessee had failed to prove the genuineness of the transactions. The Tribunal decided to remand the case to the AO for recalculations, considering the percentage of bogus purchases and/or gross profit, after allowing the assessee to present relevant material.

Conclusion:

The Tribunal upheld the assessment order's findings regarding the unexplained purchases and the application of Section 69C, emphasizing the lack of evidence supporting the genuineness of the transactions. The matter was remanded to the AO for recalculations concerning the gross profit rate, providing the assessee an opportunity to present additional evidence.

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