2019 (12) TMI 961 - AT - Income Tax

Bogus purchases - HELD THAT - No adverse inference of the AO vis a vis the documentary evidence furnished by the assessee is discernible from the assessment order. Further, the assessee had furnished quantitative details of purchases and sales both before the Assessing Officer as well as the learned Commissioner (Appeals). Commissioner (Appeals) has recorded a factual finding that the assessee had effected corresponding sales against the purchases. Commissioner (Appeals) has rightly held that the addition of the entire non genuine purchases cannot be made. This is so, because in the absence of purchases, the assessee could not have effected the corresponding sales. In such circumstances, one can come to a logical conclusion that the assessee must have purchased the goods from grey market to avoid payment of Sales Tax / VAT and to regularize such purchases, the assessee might have obtained accommodation bills from hawala operators. In such scenario, the profit element embedded in the non genuine purchases can be considered for addition. After considering the overall facts and circumstances of the case and nature of business carried on by the assessee as well as consistent view of the Tribunal and different High Courts in such types of cases, we are of the considered opinion that profit estimated @ 12.5% of the non genuine purchases can reasonably be considered for the purpose of addition.

Summary

Issues:
Appeal and cross objection against addition made on account of non-genuine purchases for assessment year 2011-12.

Analysis:
The case involved an appeal and cross objection regarding the addition made on account of non-genuine purchases for the assessment year 2011-12. The Assessing Officer re-opened the assessment based on information indicating non-genuine purchases worth a certain amount. The assessee, a reseller, provided various documents to prove the genuineness of purchases, but the Assessing Officer rejected the Books of Account under section 145(3) of the Income-tax Act, leading to the addition of the disputed amount to the assessee's income. The first appellate authority agreed with the Assessing Officer but decided to estimate the profit element embedded in the non-genuine purchases at a reasonable percentage for addition, considering judicial precedents. The Revenue contended that the entire amount of non-genuine purchases should be added, while the assessee argued for a reasonable estimation of profit.

The Tribunal observed that the assessee had provided documentary evidence, including delivery challans, indicating the receipt of goods. The Assessing Officer did not make adverse observations on the authenticity of the documents. The first appellate authority noted the failure to produce current purchase confirmations and parties for examination. Considering the facts, the Tribunal held that the entire non-genuine purchases could not be added as the corresponding sales were proven. It was inferred that the goods might have been purchased from the grey market to avoid taxes, justifying the addition of the profit element. The Tribunal decided to restrict the addition to 12.5% of the non-genuine purchases, citing consistent views of higher courts in similar cases. The Tribunal distinguished a Supreme Court decision relied upon by the Revenue, stating it was not applicable to the present case. The Revenue's grounds were dismissed, while the assessee's cross objections were partly allowed. The Tribunal upheld the validity of the reopening under section 147 of the Act and pronounced the order accordingly.