2017 (9) TMI 303 - AT - Income Tax

Bogus purchases - Determination of GP Ratio - CIT(A) confirmed the additions @35% - Held that - Keeping in view peculiar factual matrix of the case where no consumption/utilization of the material for manufacture of finished goods as well fall in GP ratio was not explained by the assessee nor genuineness of the purchases stood proved, the matter needs to go back to the A.O. for de-novo determination of the issue on merits in accordance with law. - matter remanded back.

Summary

Issues Involved:
1. Sustaining addition/disallowance of 35% of purchases held as bogus/non-genuine.
2. Sustaining addition/disallowance in respect of short booking of receipts as per the 26AS statement.
3. Condonation of delay in filing the appeal.

Detailed Analysis:

1. Sustaining Addition/Disallowance of 35% of Purchases Held as Bogus/Non-Genuine:
The assessee, an individual and proprietor of M/s Hi Tech Tools, engaged in manufacturing high precision metal parts, was subject to scrutiny assessment. The AO issued notices under Section 133(6) to verify purchases from specific parties, which were returned unserved or non-complied. The AO observed that the parties were listed by sales tax authorities as suspected of issuing bills without delivery of materials. Despite the assessee submitting bills and bank statements, the AO added ?34,09,991/- as bogus purchases due to lack of evidence for delivery and transport of materials.

Upon appeal, the CIT(A) noted divergent decisions on such matters and concluded that a reasonable estimation of inflated purchases was necessary. The CIT(A) sustained disallowance at 35% of the purchase price, reducing the addition to ?10,21,467/-. The CIT(A) reasoned that the assessee likely procured materials from other sources or from suppressed stock. The assessee argued that the disallowance was excessive and that the VAT on products should be considered.

The Tribunal observed that the assessee failed to discharge the primary onus of proving the genuineness of purchases. The Tribunal noted discrepancies in the consumption ratio and GP ratio, indicating potential inflation of purchases. Thus, the Tribunal set aside the CIT(A) order and remanded the matter to the AO for de novo determination, directing the assessee to provide evidence of material utilization and consumption.

2. Sustaining Addition/Disallowance in Respect of Short Booking of Receipts as per 26AS Statement:
The assessee contested the addition of ?29,301/- due to discrepancies between the 26AS statement and ledger account with M/s Shree Krishna Controls Pvt. Ltd. The CIT(A) upheld this addition. During the hearing, the assessee's counsel did not advance arguments on this ground. Consequently, the Tribunal dismissed this ground due to non-pressing by the assessee.

3. Condonation of Delay in Filing the Appeal:
The appeal was filed 7 days late due to the assessee's business commitments and power issues at the office. The Tribunal considered the affidavit explaining the delay and, relying on the Supreme Court decision in Collector Land Acquisition v. Mst Katiji & Ors., found sufficient cause for the delay. The Tribunal condoned the delay, admitting the appeal to be decided on merits.

Conclusion:
The Tribunal partly allowed the appeal for statistical purposes, remanding the primary issue of bogus purchases to the AO for fresh adjudication, while dismissing the non-pressed ground of short booking of receipts. The delay in filing the appeal was condoned, ensuring the appeal was heard on its merits.