2022 (5) TMI 294 - AT - Income Tax

Estimation of income - Bogus purchases - purchases made from the non-existent vendors - HELD THAT - As relying on case of the assessee s father SHRI KANTILAL KACHARA GADA AND VICE-VERSA 2022 (2) TMI 1226 - ITAT MUMBAI addition restricted to the extent of 5% of the bogus purchase. - Decided partly in favour of assessee.

Issues Involved:
1. Genuineness of purchases from non-existent vendors.
2. Onus to justify the claim of expenses.
3. Substantiation of purchases with relevant documents.
4. Disallowance of unverifiable purchases.
5. Validity of reopening assessment based on sales tax department information.
6. Opportunity for cross-examination and documentary evidence.
7. Applicability of judicial precedents.
8. Estimation of addition on bogus purchases.
9. Principles of natural justice.

Issue-wise Detailed Analysis:

1. Genuineness of Purchases from Non-existent Vendors:
The Revenue contended that the assessee could not establish the genuineness of the purchases from non-existent vendors, as per information received from the Sales Tax Department, Maharashtra. The Assessing Officer (AO) raised a 100% addition of the bogus purchase amounting to Rs.1,20,48,325/-.

2. Onus to Justify the Claim of Expenses:
The Revenue argued that the onus to justify the claim of expenses lies on the assessee, who failed to discharge it concerning the purchases made from non-existent vendors.

3. Substantiation of Purchases with Relevant Documents:
The Revenue highlighted that the assessee could not substantiate its claim of purchases from non-existent vendors with relevant supporting documents related to the movement of goods, stock register, etc.

4. Disallowance of Unverifiable Purchases:
The Revenue contended that once the purchases are unverifiable/not genuine/bogus, the same should have been disallowed entirely, referencing the decision of the Hon’ble Gujarat High Court in the case of N.K. Proteins Ltd., which was upheld by the Hon’ble Apex Court.

5. Validity of Reopening Assessment Based on Sales Tax Department Information:
The assessee challenged the reopening of the assessment under section 147 of the Income Tax Act, 1961, arguing that it was based solely on information received from the Sales Tax Department without providing documentary evidence and cross-examination of the so-called hawala dealers.

6. Opportunity for Cross-examination and Documentary Evidence:
The assessee argued that the CIT(A) neither provided documentary evidence on which the AO established a reason to believe for reopening the assessment nor provided cross-examination of the concerned third party, violating the principles of natural justice.

7. Applicability of Judicial Precedents:
The assessee contended that the CIT(A) disallowed the claim based on the N.K. Proteins Ltd. case without discussing it during the hearing or issuing a show-cause notice, and argued that the facts and circumstances of the N.K. Proteins Ltd. case are not applicable to their case.

8. Estimation of Addition on Bogus Purchases:
The CIT(A) restricted the addition to 25% of the bogus purchase, considering the gross profit ratio. However, the assessee argued that the gross profit ratio was around 4%, and the ITAT, in a similar case involving the assessee’s father, had restricted the addition to 5% of the bogus purchases.

9. Principles of Natural Justice:
The assessee argued that the order was against the principles of natural justice, as it was based on surmises and conjectures without providing a fair opportunity for hearing.

Judgment:
The ITAT reviewed the facts and circumstances, noting that the CIT(A) had restricted the addition to 25% of the bogus purchase. However, in a similar case involving the assessee’s father, the ITAT had restricted the addition to 5% of the bogus purchase. The ITAT found no reason to deviate from this precedent and restricted the addition to 5% of the bogus purchases amounting to Rs.1,20,48,325/-, deciding all issues in favor of the assessee. Consequently, the appeal by the Revenue was dismissed, and the cross-objection by the assessee was partly allowed.

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