2017 (9) TMI 717 - AT - Income Tax

Reopening of assessment - bogus purchases - Held that - In the instant case there was specific information before the AO from the Sales Tax Department Maharashtra about the assessee who obtained bogus purchase bills from the accommodation entry providers. Therefore the AO has rightly reopened the assessment by issuing notice u/s 148 of the Act. Profit estimated fro bogus purchases - Held that - We find that to ascertain the genuineness of the unverifiable purchases the AO called for information u/s 133(6) from the five parties. The letters were returned back by the postal authorities unserved with the remarks not known . The AO then asked the assessee to produce the above parties for examination in person to establish their identity and substantiate the claim of purchases from those parties. The assessee however failed to produce those parties for examination in person. Also we find that barring the ledger account and cheque payments no other documents such as octroi receipts transport bills were produced before the AO by the assessee during the course of assessment proceedings. In the case of CIT vs. Simit P. Sheth (2013 (10) TMI 1028 - GUJARAT HIGH COURT) has held that where purchases were not bogus but were made from parties other than those mentioned in the books of account not entire purchase price but only profit element embedded in such purchases can be added to the income of the assessee. That being the position not the entire purchase price but only the profit element embedded in such purchases can be added to the income of the assessee. Thus we estimate @ 12.5% the profit embedded in the said bogus purchases. Disallowance of the other expenses to 5% - CIT(A) has restricted the disallowance on the reason that the appellant had maintained the verifiable vouchers and payment had been made through banking channels in majority of cases except petty expenses - Held that - We find that the above estimated disallowance is not supported by the material on record. Therefore the disallowance of 1, 40, 395/- for the AY 2010-11 and 2, 00, 162/- for AY 2011-12 arrived at by the Ld. CIT(A) are deleted.

Summary

Issues:
- Delay in filing the appeal condonation
- Reopening of assessment u/s 148
- Addition towards alleged bogus purchases
- Disallowance of expenses
- Verification of purchases from parties
- Disallowance of expenses based on verifiable vouchers

Analysis:
1. Delay in filing the appeal condonation:
- The appellant filed an appeal against the order of the Commissioner of Income Tax (Appeals)-2, Thane for AY 2010-11 & 2011-12 with a delay of 2 days. The Tribunal, after reviewing the affidavit, found a reasonable cause for the delay and thus condoned the delay in filing the appeal.

2. Reopening of assessment u/s 148:
- The AO reopened the assessment due to information from the Sales Tax Department about alleged bogus purchases by the assessee. The Commissioner upheld the reopening, stating that the AO had sufficient material to believe that taxable income had escaped assessment. The Tribunal referred to legal precedents supporting the validity of the notice issued u/s 148 in such cases and dismissed the appeal against the reopening.

3. Addition towards alleged bogus purchases:
- The AO disallowed purchases/expenses amounting to ?19,88,227/- and 20% of remaining purchases, totaling ?47,96,104/-, due to lack of supporting documents and failure to produce parties for examination. The Commissioner upheld the disallowance of ?19,88,227/- but reduced the further disallowance to 5% based on verifiable vouchers and banking transactions. The Tribunal, citing legal judgments, estimated the profit element embedded in the alleged bogus purchases and directed additions of ?2,48,528/- for AY 2010-11 and ?2,64,771/- for AY 2011-12.

4. Disallowance of expenses:
- The Commissioner restricted the disallowance of other expenses to 5% as the appellant maintained verifiable vouchers and made payments through banking channels. The Tribunal, finding the estimated disallowance unsupported by evidence, deleted the disallowance of ?1,40,395/- for AY 2010-11 and ?2,00,162/- for AY 2011-12.

5. Verification of purchases from parties:
- The AO called for information from parties providing alleged bogus bills, but the postal letters were returned unserved. The assessee failed to produce these parties for examination, leading to doubts about the genuineness of the purchases. Legal precedents were cited regarding the treatment of such purchases, resulting in the estimation of profit elements for addition.

6. Disallowance of expenses based on verifiable vouchers:
- The Tribunal noted the appellant's submission of a Paper Book containing various documents supporting the transactions. The Commissioner's disallowance based on lack of material support was overturned by the Tribunal due to the presence of verifiable vouchers and banking records.

In conclusion, the Tribunal partly allowed the appeals, directing specific additions for alleged bogus purchases while deleting the disallowance of expenses based on the availability of verifiable documentation.