2017 (11) TMI 253 - AT - Income Tax

Addition on bogus purchases - Information received in office of DGIT (Inv.), Mumbai and subsequently, from the Sales Tax Department, Mumbai, regarding suspicious parties who are only providing accommodation entries without doing any actual business - Held that - In this case the sales have not been doubted. It is settled law that when sales are not doubted, 100% disallowance for bogus purchase cannot be done. The rationale being no sales is possible without actual purchases. This proposition is supported from Hon ble jurisdictional High Court decision in the case of Nikunj Eximp Enterprises 2013 (1) TMI 88 - BOMBAY HIGH COURT . In this case, the Hon ble High Court has upheld 100% allowance for the purchases said to be bogus when sales are not doubted. However the facts of the present case indicate that assessee has made purchase from the grey market. Making purchases through the grey market gives the assessee savings on account of non-payment of tax and others at the expense of the exchequer. In such situation, in our considered opinion, on the facts and circumstances of the case, 12.5% disallowance out of the bogus purchases meets the end of justice. Accordingly we direct disallowance of 12.% of the bogus purchases. - Decided partly in favour of assessee.

Summary

Issues:
1. Disallowance of 10% of bogus purchase amounting to ?4,99,55,341.

Analysis:
The Assessing Officer made an addition for bogus purchases based on information received from the Sales Tax Department and his own inquiry. The parties from whom the assessee claimed purchases were found to be only providing accommodation entries without actual business transactions. The assessee failed to provide evidence to establish the genuineness of the transactions, including details of brokers/agents and monthly cash flow statements. Notices issued to the parties returned unserved, confirming their dubious nature. The onus was on the assessee to prove the genuineness of the claimed expenditure. The Assessing Officer made a 10% addition for the bogus purchase amount.

The assessee appealed to the CIT(A), challenging both the reopening and the merits of the addition. The CIT(A) dismissed the appeal, citing credible information received by the Assessing Officer about the bogus suppliers. The assessment was reopened based on this information. The CIT(A) relied on relevant case laws to justify the reopening. The assessee failed to provide confirmations from the parties or produce any evidence of transportation of goods. The Sales Tax Department's inquiry confirmed the parties' involvement in providing bogus accommodation entries. The revenue authorities could not accept the purchase bills from non-existent parties as genuine.

The Tribunal noted precedents where 100% disallowance was upheld for bogus purchases. However, in this case, since the sales were not doubted, a 100% disallowance was deemed inappropriate. The Tribunal considered the assessee's purchases from the grey market as a means of tax evasion. A 12.5% disallowance out of the bogus purchases was deemed appropriate in the circumstances. Therefore, the appeal was partly allowed, directing the disallowance of 12.5% of the bogus purchases.

In conclusion, the Tribunal found the assessee's purchases from non-existent parties to be bogus and upheld a 12.5% disallowance of the claimed amount. The decision was based on the lack of evidence provided by the assessee and the confirmation of the parties' dubious nature by the Sales Tax Department.