2017 (9) TMI 1218 - AT - Income Tax

Addition on account of bogus purchases - Held that - The addition was made on the basis of third party information. Under the Income Tax Act Income Tax Authorities are entitled to tax the real income. Even if the transactions is not verifiable the only taxable amount is the taxable income component therein and not the entire transactions. We are of the view that in order to fulfill the gap of revenue leakage the disallowance of reasonable percentage of alleged bogus purchase must meet the ends of justice. Considering the facts of the present case we restrict the addition @12.5% of the alleged bogus purchases (12.5% of 6, 13, 952/-). The Hon ble Bombay High Court in the case of CIT vs. Hariram Bhambhani 2015 (2) TMI 907 - BOMBAY HIGH COURT also held that the Revenue is not entitled to treat the entire sale consideration to tax but only the profit attributable to the total unrecorded sale consideration alone can be subject to tax.

Summary

Issues:
- Delay in filing appeals and application for condonation of delay
- Disallowance of alleged bogus purchases
- Disallowance of deduction of bad debts
- Peak credit benefit and burden of proof

Issue 1: Delay in filing appeals and application for condonation of delay

The appeals by the assessee were filed beyond the prescribed period of limitation, necessitating an application for condonation of delay. The delay was attributed to a bonafide belief that the appeal could only be filed after the disposal of an application before the CIT(A). The delay was not intentional, and both parties did not oppose the application for condonation of delay. The Tribunal, considering the contentions, condoned the delay in filing the appeals.

Issue 2: Disallowance of alleged bogus purchases

The Assessing Officer disallowed specific amounts on account of alleged bogus purchases from certain entities. The CIT(A) sustained the additions, emphasizing the lack of satisfactory evidence to prove the genuineness of the purchases. However, the Tribunal noted that no independent inquiry was conducted before disallowing the entire purchases. It was observed that the disallowance was based on third-party information without rejecting the books of account or sales of the assessee. The Tribunal restricted the addition to 12.5% of the alleged bogus purchases, citing the principle that only the taxable income component should be subject to tax, not the entire transactions.

Issue 3: Disallowance of deduction of bad debts

The CIT(A) did not consider or adjudicate on the ground of appeal relating to the disallowance of bad debts. The Tribunal, noting this omission, restored the issue to the file of the CIT(A) for a fresh decision. The CIT(A) was directed to grant the assessee a reasonable opportunity to be heard before deciding the issue afresh in accordance with the law.

Issue 4: Peak credit benefit and burden of proof

In the Revenue's appeal, various contentions were raised regarding the benefit of peak, burden of proof, and adverse inference. However, the tax effect involved in the Revenue's appeal was less than the threshold specified by the Central Board of Direct Taxes. Consequently, the Tribunal deemed the Revenue's appeal as not maintainable and dismissed it. The appeals filed by the assessee were partly allowed.

This detailed analysis of the judgment covers the issues of delay in filing appeals, disallowance of alleged bogus purchases, disallowance of deduction of bad debts, and the peak credit benefit with the burden of proof. The Tribunal's decisions and reasoning on each issue are outlined comprehensively, preserving the legal terminology and significant phrases from the original text.