Bogus purchases-when sales not disputed entire addition not warranted. ITAT estimated addition @12.5% of alleged bogus purchases
ABCAUS Case Law Citation:
ABCAUS 1228 (2017) (05) ITAT
The appellant assessee was aggrieved by the order passed by the CIT(A) qua confirmation of addition of bogus purchases to the extent of 25%.
Assessment Year : 2009-10
Date/Month of Pronouncement: May, 2017
Brief Facts of the Case:
The assessee was an individual and engaged as dealer of cement, cement sheet, steel and other building material under a proprietorship firm. The case of the assessee was scrutinised u/s 143(3) read with Section 147 and the Assessing Officer (AO) determined the total income of the assessee after making addition on account of bogus purchases for Rs. 36,72,973/-.
The reassessment proceedings had been initiated pursuant to receipt of certain information from Sales Tax Department wherein certain dealers were found to have indulged in the issuance of accommodation purchases bills and the assessee’s name figured in the list of beneficiaries of such accommodation bills. Consequently, the case of the assessee was reopened u/s 147 by issuance of notice u/s 148. The assessee vide notice u/s 142(1) was asked to furnish the requisite information / purchase details with respect to 8 suppliers which were listed as suspicious dealers and from whom the assessee had made the impugned purchases.
The assessee had made aggregate purchase of Rs.36,72,973/- from the said suppliers to whom notices u/s 133(6) were issued but could not be served for want of availability of these concerns at the given addresses. Upon being confronted, the assessee submitted copies of purchase bills, transport receipts etc. to substantiate the purchases and contended that the purchases were genuine. However, not convinced, AO rejected assessee’s contentions and made the impugned additions.
The assessee assailed the additions made by the AO by filing appeal before CIT(A) who after considering the factual matrix and placing reliance on various judicial pronouncements, restricted the impugned additions to 25%. Still aggrieved, the assessee was in appeal before the ITAT.
Contentions of the appellant assessee:
It was contended that the assessee was in possession of various purchase documents coupled with payment proof through banking channels and therefore, the purchases could not be doubted merely on the basis of outcome of 133(6) notices. The assessee, being a trader, sold the goods which were duly accepted by the revenue and the assessee has reconciled the quantitative details. It was further contended that even otherwise estimation of profit @25% was on the higher side as earning this much of profit in assessee’s business was not possible.
Contention of the Respondent Revenue:
The Departmental contended that adequate relief has already been provided to the assessee by CIT(A) despite being indulging in bogus purchases and therefore, the assessee deserved no further relief as the onus to substantiate the purchases squarely lied on the assessee which he had failed to discharge.
Observations made by the Tribunal:
The ITAT found that the assessee, on one hand, could not produce the supplier or even the correct addresses of these suppliers despite having been made heavy purchases from these parties. Similarly, the revenue, on the other hand, had also failed to disprove the claim of the assessee conclusively as it could not controvert the quantitative details or sales revenue earned by the assessee.
Thus, the Tribunal opined that there were lapses on both the sides. The Tribunal, invariably, in all such cases, have taken a stand that even if presuming that all purchases were bogus, entire addition thereof was not warranted for particularly when the sales were not in dispute and the assessee provided quantitative details and the addition, if any, which has to be made in all such cases is to account for profit element embedded in such purchase transactions.
Therefore, the ITAT estimated the addition @12.5% of alleged bogus purchases subject to profit already declared on these purchases.
The matter is restored back to the file of AO for limited purpose of calculating the final additions to be made in the hands of the assessee. The assessee, was directed to provide necessary information in this regard failing which the AO shall be at liberty to decide on the basis of material available on record.