2018 (9) TMI 1534 - AT - Income Tax

Bogus purchases - CIT(A) restricted the addition to the extent of 30% of the total purchase - Held that - The assessee has explained corresponding sales with respect to the entire purchases. The sales have not been disregarded. Before the AO assessee has also filed party-wise purchase along with address and total invoiced amount of each party. Merely because the assessee had not provided the VAT number of these parties the AO has added the amount. Since the corresponding sales have been accepted and the assessee had shown reasonable gross profit on sale, therefore, confirming the addition to the extent of 30% is not justified. Keeping view the totality of the facts and circumstances we direct the AO to restrict the addition to the extent 12.5% of such bogus purchases.

Summary

Issues:
- Addition of 30% of bogus purchase upheld by CIT(A)
- Assessment of bogus purchases without proper documentation
- AO's addition of 100% of the said purchase in assessee's income
- CIT(A) restricted the addition to 30% of total purchase
- Tribunal directed AO to restrict the addition to 12.5% of bogus purchases

Analysis:
The appeal was filed against the CIT(A)'s order upholding the addition of 30% of bogus purchase by the assessee. The assessee, engaged in the business of manufacturing and trading paper stickers and packing materials, was found to have indulged in bogus purchases amounting to ?1,35,98,732 from various parties as per information received from DGIT(Inv.), Mumbai. The AO reopened the case and requested documentation including PAN, VAT number, purchase bills, transportation evidence, and stock register to prove the movement of goods. However, the assessee failed to provide satisfactory evidence, leading the AO to add 100% of the said purchase to the assessee's income.

Upon appeal, the CIT(A) restricted the addition to 30% of the total purchase. The Tribunal, after careful consideration, noted that the assessee had explained corresponding sales for the entire purchases, which were not disregarded. The assessee had also submitted party-wise purchases details, though lacking VAT numbers for the parties. Given that corresponding sales were accepted and reasonable gross profit on sales was shown, the Tribunal deemed the 30% addition unjustified. Considering all facts and circumstances, the Tribunal directed the AO to limit the addition to 12.5% of the bogus purchases, thereby partially allowing the appeal filed by the assessee.

In conclusion, the Tribunal's decision to reduce the addition from 30% to 12.5% of the bogus purchases showcases a balanced approach considering the evidence provided by the assessee and the overall circumstances of the case. The judgment serves as a reminder of the importance of maintaining proper documentation and transparency in business transactions to avoid adverse tax implications.