2018 (7) TMI 752 - AT - Income Tax

Bogus purchases - estimation of income - Held that - The sales turnover achieved by the assessee has not been disputed by the revenue and the payments were through banking channels. The assessee was in possession of primary purchases documents. At the same time, the assessee could not conclusively substantiate the purchases made by him and failed to produce any of the party to confirm the transactions. Notices issued u/s 133(6) elicited no satisfactory response. Assessee was confronted with the adverse material during assessment proceedings. The delivery of material could not be substantiated by the assessee. All these factors, in our opinion, cast a serious doubt on assessee s claim. CIT(A) erred in giving full relief to the assessee by observing that the cross examination was not provided to the assessee whereas the assessee could not discharge the primary onus of proving the transactions beyond doubt. The adverse material, as available on record was duly confronted to the assessee whereas the assessee could not substantiate delivery of material and also could not produce any of the four parties to confirm the transactions. Addition, in our opinion, which could be made, was to account for profit element embedded in these purchase transactions to factorize for profit earned by assessee against possible purchase of material in the grey market and undue benefit of VAT against such bogus purchases. We estimate the same @12.5% of alleged bogus purchases of ₹ 35,54,956/- which comes to ₹ 4,44,370/-. The addition to that extent stand confirmed by us. The revenue s appeal stand partly allowed.

Summary

Issues:
Cross appeals for Assessment Year 2010-11 contesting the order of Ld. Commissioner of Income Tax (Appeals) regarding additions made to the income of the assessee based on suspicious purchase transactions.

Analysis:
1. The assessment for the impugned Assessment Year was framed by the Ld. Joint Commissioner of Income Tax, Mumbai, where certain suspicious purchase transactions were noted from information received from the Sales Tax Department. The assessee defended the purchases, claiming they were genuine, but the Ld. AO added the amount to the income as the delivery of material was not substantiated by the assessee.

2. The assessee contested the addition before the Ld. CIT(A), arguing that the purchases were genuine and used in specified construction. The Ld. CIT(A) ruled in favor of the assessee, noting that the purchases were made through account payee cheques and utilized in the construction project, supported by evidence from a Licensed Surveyor. The Ld. CIT(A) also highlighted the lack of independent inquiries by the AO to establish the purchases as bogus, citing relevant case laws.

3. Upon further appeal, the Tribunal found that while the assessee engaged in construction activities, the purchases could not be conclusively substantiated. The Tribunal estimated a profit element embedded in the purchase transactions and confirmed an addition to the income based on this estimation.

4. The Tribunal held that the Ld. CIT(A) erred in giving full relief to the assessee, as doubts were cast on the genuineness of the purchases due to the inability to substantiate them conclusively. The Tribunal partially allowed the revenue's appeal by confirming an addition to the income to account for the profit element in the purchase transactions.

5. Ultimately, the Tribunal partly allowed the revenue's appeal and dismissed the assessee's cross objections, emphasizing the need for conclusive substantiation of transactions and the consideration of profit elements in purchase transactions. The decision was pronounced on 11th July 2018.