2017 (11) TMI 1142 - AT - Income Tax

Bogus purchases - genuineness of the purchase transactions could not be verified - Held that - CIT-A restricting the disallowance/addition to 6.5% of the total non-genuine purchases, had also taken due cognizance of the fact that in the case of the assessee for the immediate succeeding years, viz. A.Y. 2010-11 and A.Y. 2011-12 the addition was restricted by the first appellate authority to 6%. We are of the considered view that the CIT(A) in the present case had on the basis of a very well reasoned order restricted the addition in the hands of the assessee to 6.5% of the total purchases aggregating to ₹ 3,61,50,427/- which were claimed by the assessee to have been made from the aforementioned 13 parties. We are persuaded to be in agreement with the view taken by the CIT(A), and finding no reason to dislodge the view taken by him, therefore, uphold his order. Appeal of the revenue is dismissed.

Summary

Issues Involved:
1. Whether the CIT(A) erred in directing the A.O to restrict the estimation of profit at 6.5% instead of 25% on total non-genuine purchases.
2. Whether the CIT(A) was justified in sustaining only an addition at 6.5% profit rate on total purchases from 13 parties.
3. Whether the order of the CIT(A) should be set aside and that of the A.O be restored.
4. Whether the CIT(A) properly upheld the reopening of the assessment under Section 147.

Analysis:

1. Restriction of Profit Estimation at 6.5%:
The revenue challenged the CIT(A)’s decision to restrict the estimation of profit to 6.5% instead of 25% on total non-genuine purchases. The A.O had initially disallowed 25% of the purchases amounting to ?3,61,50,427/- based on the assessee's failure to provide adequate documentary evidence to substantiate the genuineness of the purchases. The A.O’s decision was influenced by the fact that notices sent to the 13 parties involved were returned unserved, and the assessee failed to produce these parties for examination. The A.O concluded that the purchases were unverifiable and rejected the assessee's books of accounts under Section 145(3) of the Act, adding ?90,37,607/- to the assessee's income.

2. Justification of Addition at 6.5% Profit Rate:
The CIT(A) upheld the reopening of the assessment under Section 147 but did not agree with the A.O's addition of 25%. The CIT(A) noted that the assessee had provided substantial documentary evidence, including bank statements and ledger accounts, correlating the sales made against the purchases. However, the CIT(A) also acknowledged that the assessee failed to provide crucial evidence like delivery challans and transport receipts. Referring to the Gujarat High Court’s judgment in CIT Vs. Simit P. Sheth, the CIT(A) concluded that a profit margin of 2.5% plus 4% VAT was appropriate, thus restricting the addition to 6.5% of the total purchases.

3. Request to Set Aside CIT(A) Order:
The revenue argued that the CIT(A) erred in restricting the disallowance to 6.5% and requested the ITAT to restore the A.O’s original order. However, the ITAT found that the CIT(A) had reasonably restricted the addition based on a well-reasoned order and the precedent set by the Gujarat High Court. The ITAT upheld the CIT(A)'s decision, noting that the CIT(A) had taken due cognizance of similar cases in the assessee’s subsequent assessment years where the addition was restricted to 6%.

4. Reopening of Assessment under Section 147:
The CIT(A) upheld the reopening of the assessment under Section 147, which was initially challenged by the assessee. The reopening was based on information received from the DGIT (Inv.), Mumbai, indicating that the assessee was a beneficiary of accommodation entries provided by MVAT dealers issuing bogus purchase bills. The ITAT agreed with the CIT(A) on this point, acknowledging that the reopening was justified given the substantial evidence against the genuineness of the purchases.

Conclusion:
The ITAT dismissed the revenue’s appeal and upheld the CIT(A)’s order to restrict the addition to 6.5% of the total purchases. The ITAT found the CIT(A)’s decision to be well-reasoned and supported by legal precedents, ensuring that the addition was fair and justified based on the evidence presented. The appeal of the revenue was dismissed, and the order pronounced in the open court on 25/10/2017.