Bogus purchases with corresponding sales recorded in the books of accounts whether to cover u/s 69C or some margin addition is sufficient?

Indira A. Rohra vs. ITO- Tribunal Mumbai - 31 July 2017

Question of fact discussed: "On the facts and circumstances of the case and in law, the CIT(A) erred in partially upholding the action of the A.O in making an addition of Rs. 54,29,738/- u/s 69C of the Act being alleged bogus purchases from alleged hawala dealers by confirming the same at 25% of the original addition amounting to Rs. 13,57,435/"

Important statements/ facts/ discussion of the case for easy reference:

1) The A.O was informed by the Sales tax department that the aforementioned concerns which were engaged in the business of providing bogus purchase bills, had on the basis of their respective „Affidavits‟ filed with the authorities deposed that they were not doing any genuine business of purchase and sale of goods and had merely provided „bogus bills‟ to the beneficiaries and no goods as mentioned in the purchase bills were issued by them. The A.O thus acting upon the aforesaid information, thus in order to verify the genuineness and veracity of the aforesaid purchase transactions of the assessee called for information under Sec. 133(6) from the aforementioned parties, vide letters dated. 25.09.2013 & 15.10.2013 which were despatched by post, however, all of the respective letters were received back with the remarks “not known,

2) The CIT(A) observed that the assessee instead of substantiating the genuineness and veracity of the purchase transactions claimed to have been made by her from the aforesaid respective supplier parties, viz. by producing the necessary parties for examination by the A.O, placing on record copy of the confirmations, current mailing address of the parties, copy of the delivery challans, transport receipts, bank statements and other related details, however, merely took support of the fact that the payments in respect of the said purchase transactions were made by her to the aforesaid parties vide account payee cheques. The CIT(A) thus in the totality of the facts of the case held that that as the assessee had grossly failed to substantiate the heavy „Onus‟ as was cast upon her to prove the genuineness and veracity of the purchase transactions,

3) It was further deliberated by the learned CIT(A)  that "therefore, in the absence of genuine bills it could safely be concluded that the assessee had debited the „Purchases‟ under consideration at a value which was higher than that at which the said goods were purchased/procured by her from the open/grey market. The CIT(A) thus being of the considered view that the assessee had inflated her purchases, therein relying on the judgment of the Hon’ble High Court of Gujarat in the case of Sanjay Oil Cake Industries Vs. CIT (2008) 316 ITR 274 (Guj) and the order of the ITAT, Ahemdabad in the case of Vijay Proteins Ltd. Vs. ACIT (58 ITD 428) (Ahd) thus concluded that disallowance of 25% of the aggregate value of the hawala purchases would be reasonable and meet the ends of justice"

4) We are of the considered view that now when both the „Purchase‟ and the corresponding „Sales‟ are recorded in the „books of accounts‟ of the assessee, therefore, it can safely be concluded that the assessee who had carried out purchases of the aforesaid goods from the open/grey market, had thereafter in order to facilitate routing of the said purchase transactions through her „books of accounts‟ therein obtained „bogus bills‟ from the aforementioned parties. We are persuaded to accept the view arrived at by the CIT(A) that the assessee by purchasing the goods from the open/grey market must have been benefitted by procuring such goods at a lower rate, as against that as stood reflected in the inflated „bogus bills‟ procured from the aforementioned parties. We find that the estimation of such margin @25% fairly takes care of the margins and discounts that had been earned by the assessee from procuring the aforesaid goods from open/grey market,

5) We thus being of the considered view that the CIT(A) in the backdrop of the facts of the case had by way of a well reasoned order upheld the addition to the extent of 25% of the value of the purchases under consideration, thus finding no infirmity in the view arrived at by the CIT(A), thus uphold his order.

For reading full text of judgement please refer : https://www.taxpundit.org/phocadownload/Taxpundit_Reporter/Taxpundit_Reporter_2017/August_2017/817Taxpundit55.pdf