2018 (4) TMI 1217 - AT - Income Tax

Addition on account of bogus purchases - CIT(A) restricted the addition to the extent of 12.5% - Held that - In respect of the goods purchased from Sai International and sold by the assessee, the assessee had shown GP rate 0.15%, however, in respect of purchases other than from Sai International, the assessee has disclosed same GP of 0.15%. Thus, it is not the case where assessee has shown lower G.P. in respect of alleged bogus purchases. In the immediately preceding Assessment Year, the GP shown by the assessee on the entire sale was 0.14%. Thus, it is clear that GP shown by the assessee during the year under consideration is better than the GP shown in the immediately preceding Assessment year. Thus we modify the order of lower authorities and direct the AO to upheld addition of 2% of bogus purchases. - Decided partly in favour of assessee

Summary

Issues:
Cross appeals filed by assessee and revenue against CIT(A) order for A.Y.2010-11 regarding addition/deletion made on account of bogus purchases.

Analysis:
1. The AO added 25% of alleged bogus purchases to the assessee's income based on information from the Sales Tax Department indicating non-existent parties being hawala dealers. CIT(A) reduced the addition to 12.5%, citing a Gujarat High Court case approving inflation in purchase prices from such dealers.

2. Assessee provided detailed evidence during assessment proceedings, including purchase details, payment evidence through cheques, VAT payments, and sales matching. The books of account were satisfactory, with no deficiency noted. Quantitative details of purchases were also submitted.

3. Assessee's argument highlighted the direct connection between purchases and sales, emphasizing the genuineness of transactions. The GP ratio comparison showed consistency and no inflation in purchase prices compared to the previous year.

4. The learned AR relied on various judicial pronouncements to support the genuineness of the transactions and the consistency in the assessee's business operations.

5. The DR contended that invoices were prepared by only two persons over a period of six months, with multiple bills issued on the same date in some instances. The supplier did not respond to the AO's notice.

6. The ITAT considered all contentions, reviewed lower authorities' orders, and analyzed the factual matrix. The AO's 25% addition was reduced to 12.5% by CIT(A), and the ITAT further reduced it to 2% based on the GP comparison and overall facts of the case.

7. The ITAT dismissed the revenue's appeal and partially allowed the assessee's appeal, directing the AO to uphold the addition of 2% of bogus purchases. The order was pronounced on 23/08/2017.