2020 (3) TMI 281 - AT - Income Tax

Bogus purchases - AO received information from DGIT (Investigation), who in turn received information from Sales Tax Department, Mumbai that the assessee has made purchases from hawala parties, as listed in hawala dealers by the Maharashtra Sales Tax Department who are providing bogus bills of purchase - HELD THAT - CIT(A) upheld the order of AO on the ground that the assessee could not substantiate the consumption of materials in manufacturing process. We also note that assessee has filed purchase bills, challan for receipt of goods, details of payment through cheque and bank statement etc. The notice 133(6) the Act was also issued but the supplier relied that due to raid by the department the information could not be furnished We cannot sustain the order of CIT(A) upholding the order of AO wherein 100% bogus purchases were added. In our opinion, a percentage can be applied to bring to tax the profit element in the said purchases. Accordingly we direct the AO to apply rate of 12.50% on the said purchases. - Appeal of the assessee is partly allowed.

Summary

Issues:
1. Addition made on bogus purchases confirmed by CIT(A)

Analysis:
The appeal before the Appellate Tribunal ITAT Mumbai arose from the order of the Commissioner of Income Tax (Appeals) confirming the addition made by the Assessing Officer (AO) on the bogus purchases. The AO received information from the Sales Tax Department that the assessee had made purchases from hawala parties providing bogus bills. Despite the assessee's submission of purchase bills, ledger extracts, and bank statements, the AO found the purchases unproved and made an addition of ?46,644 to the assessee's income. The CIT(A) also upheld this disallowance, stating that the assessee failed to substantiate the purchases with internal evidences like stock registers or consumption details. The CIT(A) noted that the party from whom the purchases were made did not provide sufficient evidence, leading to the disallowance of the purchases as bogus. The Appellate Tribunal noted that while the assessee was a beneficiary of hawala purchase entries, a blanket addition of 100% was not justified. Instead, the Tribunal directed the AO to apply a profit rate of 12.50% on the disputed purchases, partially allowing the appeal.

In conclusion, the Appellate Tribunal ITAT Mumbai partially allowed the appeal of the assessee by directing the AO to apply a profit rate of 12.50% on the disputed purchases instead of making a 100% addition. This decision was based on the assessee's failure to substantiate the purchases with internal evidences and the beneficiary status in hawala purchase entries. The Tribunal found that a blanket addition was not warranted, and a percentage approach would be more appropriate in taxing the profit element of the disputed purchases.