2018 (12) TMI 973 - AT - Income Tax

Addition to bogus purchases - information from the Sales Tax Department of Maharashtra that the said concern, M/s. Amar Enterprise figures in the list of hawala dealers - Held that - While the orders of the authorities below reveal that the purchases were not properly substantiated by the assessee, but it also reflects the plea of the assessee that the material corresponding to such invoices has been used by the assessee for business - corresponding sales of the products have not been doubted. As case of Simit P. Sheth (2013 (10) TMI 1028 - GUJARAT HIGH COURT) comes into play whereby it has been inferred that under such circumstances, the reasonable inference is that assessee had indeed effected the purchases, but not from the stated concern. In this case, assessee had canvassed that the impugned purchases was of essential raw materials which was consumed in the business of offset and plate processing. What is required to be added to the returned income is the savings effected by the assessee by making such purchases not from the stated concern, but from undeclared source in the grey market. Considering these aspects, in our view, it would be in the fitness of things that 12.5% of the impugned purchases be considered as an addition required to be made to the returned income in order to plug the leakage of revenue - thus restrict the addition to 12.5% of the impugned purchases and delete the balance. - decided partly in favour of assessee.

Summary

Issues: Addition of bogus purchases to returned income.

Analysis:
The appeal pertains to the Assessment Year 2009-10 and challenges the addition of ?14,86,450 made to the returned income due to alleged bogus purchases. The primary reason cited by the income-tax authorities for treating these purchases as bogus was information from the Sales Tax Department indicating the supplier as a hawala dealer. The assessee contended that only the profit element from such purchases should be added based on precedents like the judgment in Simit P. Sheth case. The authorities had demanded full addition due to the failure to produce the supplier. However, the assessee maintained that the purchased material was used for business purposes and provided basic details and bills to support the claim. Notably, the sales corresponding to these purchases were not questioned. The Tribunal referred to the Gujarat High Court's judgment in Simit P. Sheth case, which suggested adding only the savings made by purchasing from an undeclared source. Consequently, the Tribunal directed the Assessing Officer to limit the addition to 12.5% of the disputed purchases to prevent revenue leakage, thereby partially allowing the appeal.

This detailed analysis of the judgment highlights the key arguments presented by both parties, the basis for the authorities' decision, the legal precedents invoked, and the Tribunal's reasoning for modifying the addition of bogus purchases to the returned income.