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2019 (9) TMI 755 - AT - Income Tax


Issues Involved:

1. Disallowance of entire purchases by the assessee.
2. Evidence of bogus transactions.
3. Gross profit addition as an alternative to disallowance.
4. Reliance on previous tribunal decisions.
5. Rebuttal opportunity and failure to prove genuineness.
6. Maintenance and accuracy of stock records.
7. Potential undisclosed purchases or sales.

Issue-wise Detailed Analysis:

1. Disallowance of Entire Purchases by the Assessee:
The Assessing Officer disallowed the entire purchases made by the assessee from certain vendors, based on information from the Sales Tax Department (VAT), Investigation Division, Mumbai. The vendors were confirmed to be providing bogus accounting entries. The assessee failed to provide evidence to prove the genuineness of these transactions, as the businesses of the sellers had closed.

2. Evidence of Bogus Transactions:
The Assessing Officer relied on statements and investigation reports indicating that the vendors were providing accommodation entries for bogus purchases. These statements were not presented to the assessee during the assessment proceedings. The tribunal in similar cases has held that reliance on such statements without cross-examination or independent verification is insufficient to justify disallowance.

3. Gross Profit Addition as an Alternative to Disallowance:
The assessee argued that if the purchases were disallowed, only the gross profit should be added, not the entire purchase amount. Previous tribunal decisions, such as in the case of M/s. VBC Jewellery, supported this view, suggesting that only a percentage of the alleged bogus purchases should be added to the income, typically around 6%.

4. Reliance on Previous Tribunal Decisions:
The tribunal referred to several previous decisions, including M/s. VBC Jewellery and Mr. Syed Mubarak Ali, where it was held that disallowance of the entire purchase amount was not justified if the sales were accepted as genuine. These decisions emphasized that only the profit margin on the alleged bogus purchases should be added to the income.

5. Rebuttal Opportunity and Failure to Prove Genuineness:
The assessee was given an opportunity to rebut the information provided by the Sales Tax Department but failed to do so. The assessee did not produce the concerned persons or provide material evidence to substantiate the genuineness of the purchases. This failure to provide adequate proof led to the upholding of the disallowance by the Assessing Officer and the Commissioner of Income Tax (Appeals).

6. Maintenance and Accuracy of Stock Records:
The tribunal noted discrepancies in the assessee's stock records. The claim that the purchases were included in the stock and subsequently sold suggested potential issues with the accuracy of the stock register. The tribunal inferred that there might be undisclosed purchases or sales, which the assessee was attempting to cover up with bogus entries.

7. Potential Undisclosed Purchases or Sales:
The tribunal considered the possibility that the assessee might have engaged in undisclosed purchases or sales, given the failure to prove the genuineness of the transactions and the inclusion of the alleged bogus purchases in the stock records. This suspicion further justified the disallowance of the purchases.

Conclusion:
The tribunal dismissed the appeals filed by the assessee, upholding the disallowance of the entire purchases. The decision was based on the assessee's failure to prove the genuineness of the transactions, discrepancies in the stock records, and the potential for undisclosed purchases or sales. The tribunal emphasized the need for the assessee to substantiate its claims with material evidence, which was not done in this case.

Order Pronouncement:
The order was pronounced on 12th July, 2019, at Chennai, dismissing all the appeals filed by the assessee.

 

 

 

 

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