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2017 (10) TMI 1249 - AT - Income TaxBogus purchases - Held that - Disallowance for bogus purchase depends upon the facts of the case. In this case the assessee is not engaged in trading hence relief on the analogy that sales are not doubted cannot be granted. Case laws cited by assessee are not applicable. However, find that in many cases, ITAT Mumbai Benches have held that 12.5% disallowance of the bogus purchases in such cases meets the ends of justice, following Hon ble Gujarat High Court decision in case of Simit P.Seth 2013 (10) TMI 1028 - GUJARAT HIGH COURT . Accordingly, modify the order of the learned CIT(A) and hold that 12.5% disallowance of bogus purchases should be done.
Issues Involved:
1. Addition of 25% of alleged bogus purchases. 2. Treatment of bogus purchases based on third-party evidence. 3. Verification of the genuineness of purchases. 4. Opportunity for cross-examination of the parties. 5. Interest charged under sections 234B and 234C. Issue-wise Detailed Analysis: 1. Addition of 25% of Alleged Bogus Purchases: The Assessing Officer (AO) added 25% of alleged bogus purchases amounting to ?7,36,556/-. The CIT(A) enhanced the addition to ?10,15,615/- by considering the total alleged bogus purchases of ?40,62,462/- from five parties. The AO's basis for the addition was the inflation of expenditure resulting in escapement of income. The CIT(A) justified the 25% addition by referencing the Gujarat High Court's judgment in CIT vs. Sanjay Oil Cakes (2009) and the nature of the appellant's business. 2. Treatment of Bogus Purchases Based on Third-Party Evidence: The AO treated the purchases as bogus based on information from the Sales Tax Department, which indicated that the suppliers were suspicious dealers issuing false bills without delivering goods. The AO's own enquiries confirmed that the suppliers were untraceable or admitted to providing only bills. The AO concluded that the assessee failed to discharge the onus of proving the genuineness of the purchases. 3. Verification of the Genuineness of Purchases: The AO issued notices under section 133(6) to the suppliers, which were returned unserved. The assessee failed to produce the suppliers or provide satisfactory documentary evidence of the transactions, such as transport documents or goods receipt notes. The CIT(A) upheld the AO's conclusion that the purchases were not genuine and only the profit element embedded in the purchases should be taxed. 4. Opportunity for Cross-Examination of the Parties: The assessee argued that the AO did not provide an opportunity for cross-examination of the suppliers, which violated the principles of natural justice. However, the CIT(A) and the Tribunal found that the overwhelming evidence of bogus purchases and the failure of the assessee to produce the suppliers justified the AO's actions. 5. Interest Charged Under Sections 234B and 234C: The assessee contested the interest charged under sections 234B and 234C. However, the Tribunal's decision focused on the disallowance of bogus purchases and did not specifically address the interest charges. Tribunal's Judgment: The Tribunal found substantial evidence supporting the AO's conclusion that the purchases were bogus. The Tribunal noted that the assessee was engaged in manufacturing, not trading, and thus the disallowance of bogus purchases should not be based on the analogy that sales were not doubted. The Tribunal modified the CIT(A)'s order, reducing the disallowance to 12.5% of the bogus purchases, following the precedent set by the Hon’ble Gujarat High Court in the case of Simit P. Seth. Conclusion: The Tribunal partly allowed the appeal, reducing the disallowance of bogus purchases to 12.5%. The order was pronounced on July 3, 2017.
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