2017 (10) TMI 529 - AT - Income Tax

Bogus purchases - assessee has availed hawalas entries - Held that - As find that the assessee has availed hawalas entries in respect of purchases to the tune of ₹ 2,91,48,000/-. But in such type of cases, the assessee purchases good from gray market at cheaper rates thus gets additional benefit by avoiding VAT, and other in levies. The assessee has already declared GP 18.21% during the year. Under these circumstances we are of the considered opinion that the addition sustained at the rate of 22% of the total purchases is excessive and unreasonable and keeping in nature of business of the assessee and GP declared by the assessee during the year and also the decisions of the Coordinate Benches wherein the additions are sustained to the tune of 5% to 12.5% there should be some reasonable disallowance. To maintain the consistency with the orders passed by the Tribunal earlier, we are inclined to sustain 12.5% of the total purchases. The assessee gets relief of 12.5%. The appeal of the assessee is partly allowed.

Summary

Issues:
Cross-appeals against CIT(A)'s order for assessment year 2011-12 - Sole issue: confirmation of addition to purchases by CIT(A) - AO's addition of entire purchases due to lack of proof - CIT(A) upheld addition to 25% - Appellate Tribunal's decision on the extent of addition.

Analysis:
The case involved cross-appeals against the CIT(A)'s order for the assessment year 2011-12. The sole issue raised by the assessee was the confirmation of the addition to purchases by the CIT(A). The Assessing Officer (AO) had added the entire purchases to the total income of the assessee due to the lack of proof regarding the genuineness of the purchases and consumption of materials in manufacturing. The AO received information indicating that the assessee obtained accommodation entries for purchases through parties declared as hawala operators. The assessee, engaged in manufacturing and processing ferro and metal alloys, submitted various details and proofs to establish the genuineness of the purchases, but the AO remained unconvinced. Consequently, the AO assessed the total income at a higher amount.

In the appellate proceedings, the CIT(A) partly allowed the appeal after considering the submissions made by the assessee. The CIT(A) upheld the addition to purchases at 25%, citing the Gujarat High Court's decision in a similar case. The Appellate Tribunal, upon reviewing the case, found that the assessee had availed hawala entries for purchases without taking delivery of materials. However, considering the nature of the business and the GP declared by the assessee, the Tribunal deemed the 25% addition excessive. To maintain consistency with previous decisions, the Tribunal sustained a disallowance of 12.5% of the total purchases, providing the assessee with relief.

As a result, the appeal of the assessee was partly allowed, and that of the revenue was dismissed. The Tribunal's decision was pronounced in an open court on 29th September 2017.