2017 (5) TMI 244 - AT - Income Tax

Addition made towards bogus purchases - Held that - There is no material on record to conclusively prove that the purchases made by the Assessee are bogus purchases and nothing is brought on record to suggest that the information gathered by the Sales Tax department conclusively proves that the dealer is providing only the accommodation entries to the Assessee before us. Thus we hold that addition made towards bogus purchases cannot be sustained. At the same time, keeping in view the nature of business of the Assessee and possibility of the Assessee making local purchases without any transportation bills, delivery challans etc., and the possibility of the Assessee making purchases in grey market on cash cannot be ruled out. Therefore, keeping in view the facts and circumstances of the case, we direct the Assessing Officer to disallow 12.5% of the above purchases to meet the anomalies and to cover up the leakage of revenue and not the entire purchases.

Summary

Issues Involved:
1. Reopening of assessments under Section 148 based on information from the Sales Tax Department.
2. Addition towards bogus purchases.
3. Onus of proof and opportunity for cross-examination.
4. Reliance on information from Sales Tax Department without further investigation.
5. Treatment of purchases as bogus without rejecting the books of account.

Detailed Analysis:

Reopening of Assessments under Section 148:
The Assessing Officer (AO) reopened the assessments for the years 2006-07 to 2009-10 based on information from the Sales Tax Department, which indicated that certain dealers provided only accommodation entries without actual sales. The AO issued notices under Section 148 and required the Assessee to justify the purchases from M/s Manav Impex as genuine.

Addition Towards Bogus Purchases:
The AO concluded that the purchases were bogus, based on the information from the Sales Tax Department and the admission of M/s Manav Impex to the Sales Tax Authorities about indulging in bogus sales/purchases. The AO rejected the Assessee's detailed submissions, which included stock lists, purchase invoices, and bank statements proving payments made through cheques.

Onus of Proof and Opportunity for Cross-Examination:
The Assessee argued that the AO did not confront them with the information received from the Sales Tax Department nor provided an opportunity for cross-examination of M/s Manav Impex. The Assessee contended that the onus was on the Department to prove the purchases as bogus through cogent evidence, and merely relying on information from the Sales Tax Department was insufficient.

Reliance on Information from Sales Tax Department Without Further Investigation:
The Tribunal observed that the AO made no efforts to issue notices under Section 133(6) to the supplier for further inquiries. The sole basis for the addition was the information from the Sales Tax Department, which was not shared with the Assessee. The Tribunal noted that the AO accepted the sales made by the Assessee, implying that without purchases, there could be no sales.

Treatment of Purchases as Bogus Without Rejecting the Books of Account:
The Tribunal found that the AO did not reject the Assessee's books of account. The Assessee produced necessary documents like bank statements and ledger copies to prove the genuineness of the purchases. The Tribunal held that without further investigation and merely because the Assessee could not produce the dealers, the entire purchases could not be treated as bogus.

Tribunal's Findings:
1. Reopening of Assessments: The reopening of assessments was based solely on the information from the Sales Tax Department, which was not shared with the Assessee.
2. Addition Towards Bogus Purchases: The Tribunal found that the AO made the addition without substantial evidence and solely relied on the information from the Sales Tax Department.
3. Onus of Proof: The onus was on the Department to prove the purchases as bogus, which it failed to do.
4. Opportunity for Cross-Examination: The Assessee was not given an opportunity to cross-examine the parties from whom the information was obtained.
5. Further Investigation: The AO did not conduct further investigations to substantiate the claim of bogus purchases.

Conclusion:
The Tribunal concluded that the purchases could not be treated as entirely bogus. However, considering the possibility of the Assessee making local purchases without proper documentation, the Tribunal directed the AO to disallow 12.5% of the purchases to cover potential revenue leakage, instead of disallowing the entire amount.

Final Order:
The appeals of the Assessee were partly allowed, with the AO directed to disallow 12.5% of the purchases. The order was pronounced in the open court on April 26, 2017.