2018 (10) TMI 801 - AT - Income Tax

Addition at 12.5% of the alleged bogus purchases - Held that - The assessee was in possession of primary purchases documents. At the same time, the assessee could not produce even a single party to confirm the transactions and even failed to provide the addresses of the suppliers so as to enable further investigation by AO. The delivery of the material could not be substantiated despite the fact that the assessee was dealing in item like steel. All these factors cast a serious doubt on assessee s claim. Therefore the addition, 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, which first appellate authority has rightly done. As assessee was dealing in price sensitive item like Steel, we find the estimation of 12.5% to be on the higher side. We restrict the same to 8% of alleged bogus purchases of ₹ 25,61,087/- which comes to ₹ 2,04,887/-. Ground number-1 stand partly allowed. Addition of peak credit u/s 69C on the premise that material was purchased in cash from the open market whereas the accommodation purchase bills were procured from the alleged hawala dealers - Held that - CIT(A) while confirming the stand of AO, estimated the additions @12.5% instead of peak credit keeping in view several judicial pronouncements and therefore, there was no new addition made by Ld. CIT(A) as is alleged by Ld. AR before us. Only the method of estimation has been modified by Ld. CIT(A) and nothing more. Nevertheless, the addition as made by both the lower authorities spring out of the fact that the assessee, as per the information of Sales Tax Authorities, was found to be indulging in procuring accommodation bills from certain parties. Therefore, we do not find any substance in the legal arguments as raised by Ld. AR before us. Ground numbers 2 to 5 stand dismissed.

Summary

Issues:
1. Confirmation of addition on account of alleged bogus purchases
2. Validity of reopening assessment under Section 147
3. Estimation of additions by the lower authorities

Analysis:

Issue 1: Confirmation of addition on account of alleged bogus purchases
The appeal contested the order of the Ld. Commissioner of Income-Tax (Appeals) regarding the confirmation of certain addition on account of alleged bogus purchases for Assessment Year 2009-10. The original return filed by the assessee was assessed at ?13.45 Lacs after an addition of alleged bogus purchases amounting to ?11.13 Lacs. The reassessment proceedings were initiated based on information received from the Sales Tax Department, Maharashtra. The assessee failed to produce suppliers to confirm the transactions and defend the proposed addition under Section 69C. The Ld. AO believed that the goods were sourced from unregistered dealers in the open market with bills procured from hawala dealers. The Ld. AO added ?11.13 Lacs to the income of the assessee under Section 69C. The Ld. CIT(A) restricted the additions to 12.5% of the alleged bogus purchases. The ITAT found the estimation of 12.5% to be on the higher side and restricted it to 8% of the alleged bogus purchases.

Issue 2: Validity of reopening assessment under Section 147
The reassessment proceedings were initiated within four years of the original return processing under Section 143(1). The Ld. AO had tangible material from the Sales Tax Department, forming the belief that certain income had escaped assessment. The reasons for reopening were duly supplied to the assessee. The Ld. AO proceeded to reassess the income based on this tangible information. The Ld. CIT(A) confirmed the additions made by the Ld. AO, estimating them at 12.5%. The ITAT found no substance in the legal arguments challenging the reassessment proceedings and upheld the decisions of the lower authorities.

Issue 3: Estimation of additions by the lower authorities
The ITAT partially allowed the appeal by reducing the estimated additions from 12.5% to 8% of the alleged bogus purchases. The ITAT noted that there was no new addition made by the Ld. CIT(A) and only the method of estimation had been modified. The additions made by both the Ld. AO and Ld. CIT(A) were based on the information that the assessee was involved in procuring accommodation bills from certain parties. The legal arguments raised by the assessee were dismissed, and the appeal was partly allowed.

In conclusion, the ITAT partially allowed the appeal, reducing the estimated additions and upholding the decisions of the lower authorities regarding the alleged bogus purchases and reassessment proceedings.