Case Law Details
Sushama Industries Vs ITO (ITAT Kolkata)
Introduction: The Income Tax Appellate Tribunal (ITAT) Kolkata recently addressed the issue of bogus purchases in the case of Sushama Industries vs. ITO for the Assessment Year (AY) 2011-12. The key contention in this case was the addition of Rs. 7,27,536/- by the Assessing Officer (AO) on account of bogus purchases. The ITAT’s decision primarily focuses on whether the entire amount should be added to the income of the assessee or if a more nuanced approach should be adopted.
Detailed Analysis:
1. Background and Assessment: Sushama Industries, engaged in the business of manufacturing electrical goods and aluminum items, was assessed for AY 2011-12. The AO initiated proceedings under Section 147 and issued a notice under Section 148 based on information received from the DDIT (Investigation), Kolkata. The AO alleged that the assessee had made bogus purchases of Rs. 7,27,536/- from seven parties controlled by Sri Sanjiw Kumar Singh, who was involved in providing accommodation entries. The entire purchase amount was added to the assessee’s income.
2. Confirmation by Ld. CIT(A): The Commissioner of Income-tax (Appeals) (CIT(A)) upheld the AO’s order, reasoning that the assessee failed to substantiate the purchases with adequate evidence.
3. The ITAT’s Decision: The ITAT acknowledged that the assessee had indeed produced bills and vouchers for the purchases in question, but it did not adequately respond to the show-cause notice issued by the AO. In cases of bogus purchases, the ITAT noted that it is not appropriate to add the entire purchase amount to the income. Instead, only the profit element embedded in the bogus purchases should be considered.
4. 5% Disallowance: While the assessee failed to provide convincing evidence of the goods being received, the ITAT decided to make a reasonable disallowance of 5% on the profit element of the bogus purchases. This modification of the CIT(A)’s order directs the AO to sustain the addition to the extent of 5% of the bogus purchases.
Conclusion: The ITAT Kolkata’s decision in the case of Sushama Industries vs. ITO for AY 2011-12 provides important insights into the treatment of bogus purchases. While the entire purchase amount is not added to the income, the decision emphasizes the need for proper documentation and responses to AO’s inquiries. In this case, a 5% disallowance on the profit element of the bogus purchases was deemed appropriate. This ruling underscores the importance of maintaining accurate records and providing satisfactory explanations when faced with allegations of bogus transactions.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This is an appeal preferred by the assessee against the order of Learned Commissioner of Income-tax (Appeals)-13, Kolkata [hereinafter referred to Ld. ‘CIT(A)’] dated 27.02.2020 for the Assessment Year (in short ‘AY’) 2011-12.
2. The issue raised in ground no. 5 which is only pressed at the time of hearing which is against the confirmation of addition of Rs. 7,27,536/- by Ld. CIT(A) as made by the Assessing Officer (in short ld. ‘AO’) on account of bogus purchases.
3. At the outset, we notice that the appeal of the assessee is delayed by 1,200 days. The assessee has filed condonation petition explaining the reasons attributable to late filing of the appeal of the assessee. We observe from the condonation petition that the delayed filing of the appeal was on account of non-receipt of appellate order passed by Ld. CIT(A). We note that the order was passed by Ld. CIT(A) before the COVID-19 restrictions set in and was not received by the assessee. The assessee came to know only in the month of March, 2021 when the assessee’s representative visited the office of Ld. CIT(A). Then the assessee applied for the copy of the order vide letter dated 23.03.2021 and thereafter again the assessee applied vide letter dated 13.07.2021 & 27.04.2023 but the office of Ld. CIT(A) failed to supply the copy of the appellate order and the copy of the appellate order was finally supplied on 12.06.2023 and the appeal was filed on 11.08.2023. Thus, there is a delay of 1,200 days. After considering the rival contentions and perusing the material on record, we find that substantial part of the delay is covered by COVID-19 period and whatever remaining period was there that is on account of non-supplying of copy of the appellate order to the assessee by the first appellate authority despite repeated communications. In our opinion, the delay in filing the appeal cannot be attributed to the assessee as the assessee was not having the copy of appellate order. Besides, the assessee has not gained anything in any manner whatsoever by delayed filing of the appeal. In our opinion, the substantial delay was for COVID pandemic and other technicalities and therefore the assessee needs to be given a fair chance to represent its case on merit. Considering these facts, we are inclined to condone the delay and admit the appeal for adjudication.
4. On the issue of addition of Rs. 7,27,536/-, we note that the AO after receiving information from DDIT (Inv.), Kolkata that Sri Sanjiw Kumar Singh is providing accommodation entries and the assessee is the beneficiary of the same. Accordingly, the case of the assessee was reopened u/s 147 of the Act after issuing notice u/s 148 of the Act. The AO observed on the basis of information furnished by the assessee that the assessee has made bogus purchases of Rs. 7,27,536/- from seven parties the details of which are given at page no. 7 of the assessment order which were controlled by Sri Sanjiw Kumar Singh. The AO added the entire purchases to the income of the assessee when the assessee failed to produce the stock registrar substantiating the fact that goods were in fact received by the assessee and used in the manufacturing of goods. Ld. CIT(A) confirmed the order of the AO on the ground that the assessee has failed to prove the purchases with cogent evidences.
5. After hearing the rival contentions and perusing the material on record, we find that the assessee is in the business of manufacturing of electrical goods and aluminium items. The AO after receiving the information from DDIT (Inv.), Kolkata came to the conclusion that the assessee has purchased goods worth Rs. 7,27,536/- from the concerns controlled and operated by Sri Sanjiw Kumar Singh who is engaged in providing accommodation We note that the assessee has produced evidences, comprising bills vouchers however has not responded to the show cause notice issued by the AO. In our opinion in the case of bogus purchases the entire purchases cannot be added to the income and only profit element embedded in the said purchases can be added. In the similar type of cases, the various Coordinate Benches have held that where the assessee has obtained bogus bills of purchases and the purchases were in fact made from the other suppliers i.e grey market thereby making the savings in respect of VAT and other additional expenses and therefore, the assessee earns more than the normal profits. In the present case the assessee has duly furnished bills and vouchers and the material was consumed in the manufacturing process. However, since the assessee has failed to offer any cogent and convincing reply about the goods being received by the assessee with necessary evidences, we deem it fit to make a reasonable disallowance of 5% on account of profit element. Accordingly, the order of Ld. CIT(A) is modified and the AO is directed to sustain the addition to the extent of 5% of the bogus purchases.
6. In the result, the appeal filed by the assessee is partly allowed.
Kolkata, the 12th October, 2023.
