2020 (9) TMI 621 - AT - Income Tax

Bogus purchases u/s 69C - purchases allegedly made by the assessee from the concerned Hawala parties as unexplained expenditure - CIT-A restricted addition to 3% - HELD THAT - Disallowance of 3% made by the CIT(A) of the purchases in dispute is fair and reasonable and there is no justifiable reasons to interfere with the same. We accordingly uphold the impugned order of the ld. CIT(A) giving relief to the assessee on this issue and dismiss this appeal of the Revenue.

Issues Involved:
1. Whether the purchases made by the assessee from eight parties were genuine or bogus.
2. Whether the addition made by the Assessing Officer under section 69C of the Income Tax Act, 1961, was justified.
3. Whether the CIT(A) was justified in restricting the addition to 3% of the alleged bogus purchases.

Detailed Analysis:

1. Genuineness of Purchases:
The assessee, a partnership firm engaged in trading Iron and Steel, filed its return of income for the relevant year. The Assessing Officer (AO) gathered information from Sales Tax Authorities indicating that the assessee made purchases from eight parties involved in issuing bogus bills. Notices issued under section 133(6) to these parties were returned unserved. The assessee failed to produce these parties for examination but submitted ledger extracts and quantitative details of sales and purchases, asserting that all payments were made through account payee cheques. The AO did not find merit in the assessee's submissions and held that the purchases were bogus since the assessee could not prove the genuineness of the transactions or produce the parties involved.

2. Addition under Section 69C:
The AO treated the entire amount of ?2,29,12,188/- as unexplained expenditure under section 69C, concluding that the purchases were not genuine and were only book entries. The AO argued that the assessee must have made purchases from the open market, which were not recorded in the books, and the source of expenditure for these purchases remained unexplained. The AO, therefore, added this amount to the total income of the assessee.

3. CIT(A)'s Restriction to 3%:
The assessee appealed against the AO's order, and the CIT(A) found merit in the assessee's submissions. The CIT(A) noted that the assessee is a trader, and the purchases were either sold or held as stock, with no material difference in the quantitative analyses of purchases and sales. The CIT(A) acknowledged that the suppliers were identified as hawala dealers, and the assessee had paid the sales tax subsequently. The CIT(A) concluded that the purchases were likely made from other parties without issuing bills, and the payments might have been routed through a chain. The CIT(A) opined that a certain percentage of the purchases should be treated as unaccounted payments and restricted the addition to 3% of the total purchases, amounting to ?6,87,365/-.

Tribunal's Decision:
The Tribunal agreed with the CIT(A) that section 69C was not applicable as the purchases were recorded in the books and settled through bank payments. The Tribunal also concurred that the entire purchases could not be treated as bogus since there were corresponding sales. The Tribunal upheld the CIT(A)'s decision to disallow 3% of the purchases for the unverifiable element involved, considering it fair and reasonable given the low-profit margin in the assessee's business and the recovery of sales tax by the Sales Tax Department. Consequently, the Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s order.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order to restrict the addition to 3% of the alleged bogus purchases, amounting to ?6,87,365/-, considering it a fair and reasonable disallowance for the unverifiable element involved. The Tribunal found no justifiable reason to interfere with the CIT(A)'s decision.

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