2018 (1) TMI 283 - AT - Income Tax

Bogus purchases - Held that - We are of the considered opinion that there could be no sale without purchase of material keeping in view the assessee s nature of business. The turnover achieved by the assessee has not been disputed by the revenue and the payments were through banking channels. The assessee reconciled quantitative details also. However at the same time the assessee reflected purchases from seven entities all of which were controlled by the same group and the assessee could not produce any of the party for confirmation of the transaction. Said group controlled more than 70 entities with the sole objective of providing accommodation bills to the interested person through network of agents. The entities were being managed by the employees / relatives of the said group who were merely name lender and had no knowledge about the business being carried out by these entities. All these factors cast a serious doubt on assessee s claim. Therefore the addition which could be made was to account for profit element embedded in these purchase transactions to factorize for profit element earned by assessee against possible purchase of material in the grey market and undue benefit of VAT against alleged bogus purchases which Ld.CIT(A) has rightly done. The assessee has placed reliance on several judicial pronouncements but we find the matter to be a factual one which requires estimation of income. Therefore on totality of facts we find the estimation made by Ld. CIT(A) to be on the lower side and hence we enhance the same to 6% of alleged bogus purchases of Rs. 5, 87, 40, 062/- which comes to Rs. 35, 24, 404/- - Decided in favour of revenue in part

Summary

Issues:
Cross appeals by assessee and revenue for AY 2013-14 regarding confirmation of additions on account of bogus purchases.

Analysis:
1. The appeals contested the order of Ld. CIT(A) regarding certain additions on account of alleged bogus purchases. The revenue's appeal was delayed, but the correct date of communication was established. The assessee did not object to the delay.

2.1. The assessee, engaged in manufacturing and exporting diamond studded jewelry, was assessed for AY 2013-14 with an addition for alleged bogus purchases. The total purchases were noted at Rs. 5,87,40,062 from seven concerns linked to accommodation/bogus bills.

2.2. The purchases were made from entities controlled by a group involved in accommodation bills. The details were extracted by Ld. AO in the assessment order.

2.3. A search/survey on the group revealed their involvement in accommodation bills and loans. The firms were found to be operating under the group's control without actual business activities.

2.4. The assessee failed to substantiate the purchase transactions, leading Ld. AO to estimate additions at 12.5% of alleged bogus purchases, amounting to Rs. 73,42,508.

3. Ld. CIT(A) partially allowed the assessee's contentions, reducing the additions to 3%. Both parties appealed against this decision.

4. The Ld. DR argued that the assessee knowingly engaged with entities linked to accommodation bills to evade taxes. The group admitted to fraudulent activities during search/survey operations.

5. The Ld. AR contended that the assessee had sufficient documentary evidence for the transactions, with payments through banking channels and proper accounting in books.

6. After considering the arguments and evidence, it was found that the assessee's transactions with the group raised doubts. The estimation of income was necessary to account for profits from possible grey market purchases and VAT benefits. The additions were enhanced to 6% of alleged bogus purchases.

7. Consequently, the revenue's appeal was partly allowed, and the assessee's appeal was dismissed. The modified order was pronounced on December 13, 2017.