2015 (7) TMI 160 - AT - Income Tax

Disallowance of 50% of the so called bogus purchases - Held that - The payments have been made by account payee cheques. The suppliers have confirmed to have supplied the goods in response to the notice issued u/s.133(6). The assessee has produced third party evidences such as gate receipts of the respective companies certifying the receipt of goods in their premises. The companies where the assessee has executed the work are well known reputed companies and without the work carried out at their site they would not have made the payment to the assessee. Further, although it is the allegation of the AO that huge cash was withdrawn after the cheques were deposited, however, there is no evidence whatsoever to show that the money has come back to the assessee in some form or other. Even during the course of survey at the premises of the assessee, no incriminating materials were found to show that assessee was involved in accommodation entries. No excess cash was found. Further, the assessee has maintained proper books of accounts. The goods purchased have entered into the books of account and material consumed have also been entered into the books of account giving the quantitative details. Perusal of the orders of the authorities below and the rival submissions made by both the sides indicate that while the entire purchases cannot be treated as bogus, at the same time the entire purchases also cannot be allowed as genuine. If we allow such type of transactions as genuine it will be against assessees who meticulously maintain full records, produce the parties before the AO on being directed and produce the necessary details to substantiate their transactions. We therefore agree with the finding given by the Ld.CIT(A) that there are strengths and weaknesses in the evidences and the arguments of both the sides and it is not possible to hold either the AO or the assessee as fully correct in their claims. From the various details furnished by the assessee we find the assessee has given site-wise profitability statement vis- -vis the disallowance made by the AO if the addition so sustained by the AO is accepted, then the GP rate in 2 cases is above 99%, in one case it is about 98%, in 2 cases it is almost 93% and in 1 case it is 95% which appears to be absurd as compared to assessees engaged in similar line of business. Considering the totality of the facts of the case, we are of the considered opinion that disallowance of lumpsum amount of ₹ 75 Lakhs (Rupees Seventy Five Lakhs only) for A.Y. 2007-08 and ₹ 50 lakhs (Rupees Fifty Lakhs only) for A.Y. 2008-09 as against disallowance of ₹ 7.12 crores in A.Y. 2007-08 and ₹ 2.48 crores in A.Y. 2008-09 by the AO will meet the ends of justice. - Decided in favour of assessee partly.

Issues Involved:
1. Genuineness of Purchases.
2. Cross-examination of Witnesses.
3. Evidentiary Value of Statements.
4. Reconciliation of Purchases and Consumption.
5. Quantitative Details and Documentation.
6. Comparability with Industry Standards.
7. Partial Relief and Lump-sum Disallowance.

Detailed Analysis:

1. Genuineness of Purchases:
The primary issue was whether the purchases made by the assessee from seven parties were genuine. The Assessing Officer (AO) disallowed Rs. 7,11,55,964/- of purchases, deeming them bogus based on statements from Mr. Tushar Ruparel and others, who admitted to issuing bills without delivering goods. The AO noted discrepancies such as the absence of third-party transport bills and defects in challans. The CIT(A) provided partial relief by allowing 50% of the purchases, considering the weaknesses in the evidence from both sides.

2. Cross-examination of Witnesses:
The assessee argued that it was not given an opportunity to cross-examine Mr. Tushar Ruparel and other witnesses whose statements were used against them. The CIT(A) observed that cross-examination is a sine qua non of due process, and the failure to provide this opportunity compromised the evidentiary value of the statements.

3. Evidentiary Value of Statements:
The AO relied heavily on the statements of Mr. Tushar Ruparel and others, who admitted to providing accommodation entries. However, the CIT(A) noted that these statements were not corroborated by other evidence, and the lack of cross-examination further weakened their reliability.

4. Reconciliation of Purchases and Consumption:
The AO observed that the assessee failed to produce a quantitative reconciliation between material purchased and its consumption. The assessee argued that the goods were received and consumed at various sites, supported by confirmations from customers and third-party gate receipts. The CIT(A) found that the AO did not conclusively prove the purchases were bogus, given the lack of adverse findings during the survey at the assessee's premises.

5. Quantitative Details and Documentation:
The assessee provided various documents, including Goods Received Notes (GRNs), vendor registration forms, and confirmations from customers. The AO dismissed these as self-serving, noting differences in GRNs for goods received from different parties. The CIT(A) acknowledged these discrepancies but also noted that the AO did not find any incriminating evidence during the survey at the assessee's premises.

6. Comparability with Industry Standards:
The assessee presented a comparative analysis showing its gross profit and net profit were higher than those of competitors in the same industry. The CIT(A) considered this while granting partial relief, noting that the disallowance proposed by the AO would result in an absurdly high profit margin, inconsistent with industry standards.

7. Partial Relief and Lump-sum Disallowance:
The CIT(A) granted partial relief by disallowing 50% of the purchases, considering the strengths and weaknesses in the evidence from both sides. The Tribunal further modified this, directing a lump-sum disallowance of Rs. 75 lakhs for A.Y. 2007-08 and Rs. 50 lakhs for A.Y. 2008-09, finding it a fair resolution given the circumstances.

Conclusion:
The Tribunal concluded that while the entire purchases could not be treated as bogus, the complete allowance of the purchases was also not justified. Therefore, a lump-sum disallowance was deemed appropriate to meet the ends of justice. The appeals filed by the Revenue were dismissed, and the appeals filed by the assessee were partly allowed.

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