PCIT Vs Max Flex and Imaging Systems Ltd (Bombay High Court)
The Bombay High Court dismissed the Revenue’s appeal against the order of the Income Tax Appellate Tribunal restricting the addition on alleged bogus purchases to 12.5% of the purchase value for Assessment Year 2006-07. The Assessing Officer had reopened assessments for AYs 2006-07 to 2009-10 by issuing notices under Section 148 of the Income Tax Act, 1961 on the basis of information received from the Sales Tax Department that certain dealers were allegedly providing accommodation entries and that the assessee was a beneficiary of such dealers.
For AY 2006-07, the AO disallowed purchases of Rs. 26,96,787/- and added the entire amount to the assessee’s income. The CIT(A) sustained the addition, while the ITAT partly reversed the addition by restricting the disallowance to 12.5% of the purchases. The High Court noted that the CIT(A) and ITAT had concurrently found that the assessee furnished ledger accounts of the concerned parties, purchase bills, bank statements, proof of payments through cheques and other evidence supporting the transactions.
The Court also noted that the AO had relied principally on information from the Sales Tax Department without disclosing to the assessee the nature of the information received and had not issued notices under Section 133(6) to the suppliers for further enquiries. Importantly, the AO had not disputed the sales made by the assessee from the corresponding purchases.
The High Court agreed with the ITAT that mere inability of the assessee to produce the dealers could not, by itself, justify treating the entire purchases as bogus, particularly when further investigation could have been undertaken by the AO. The Court observed that whether purchases were bogus and whether the suppliers were bogus were essentially questions of fact. Since the assessee had furnished the tax audit report, profit and loss account, balance sheet, purchase bills, cheque payments, ledger accounts, PAN cards, bank statements and purchase confirmations, while the sales arising from the purchases remained undisputed, the ITAT was justified in estimating the addition at 12.5%. The Court further observed that the Courts have consistently held that, where sales are not disputed, only the profit element embedded in alleged bogus purchases can be brought to tax.
Whether 12.5% represented an appropriate estimate was a question of fact, and the ITAT had accepted that estimate after considering the material on record. Finding no reason to interfere with the concurrent factual conclusions, the Bombay High Court dismissed the Revenue’s appeal.
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
1. At the outset, there are two other Appeals of the same Assessee arising out of the same order against which this Appeal is filed. These two Appeals being Income Tax Appeal No.1537 of 2018 and Income Tax Appeal No.1691 of 2018, are not listed but at the request of Mr. Suresh Kumar taken on board and a common order is passed.
2. The Assessing Officer (“AO”) had reopened the assessments for Assessment Years (“AY”) 2006-07 to AY 2009-10 by issuance of notice under Section 148 of the Income Tax Act, 1961 (“the Act”) on the basis of information received from the Sales Tax Department that certain dealers were indulging in providing accommodation entries and Assessee was a beneficiary of such dealers. Therefore the AO disallowed, during the reassessment proceedings for AY 2006-2007, purchases amounting to Rs. 26,96,787/- and added the same to the total income of Assessee. Assessee filed an appeal before the Commissioner of Income Tax (Appeals) (“CIT(A)”) who by an order dated 11th March 2016, sustained the addition made by the AO. The Income Tax Appellate Tribunal (“ITAT”) had partly reversed the addition by restricting the disallowance to 12.5% of the purchases. It is that order of the ITAT passed on 26th April 2017, which is impugned in this Appeal. Respondent though served, is absent. Nobody has entered appearance for it.
3. The CIT(A) and the ITAT have given concurrent finding that Assessee has produced ledger copies of the concerned parties, purchase bills, bank statements, proof of payment having been made through cheques to prove the genuineness of the transaction whereas the AO had only relied upon the information provided by the Sales Tax Department to suggest that the purchases are non-genuine. The CIT(A) and the ITAT have also given a finding that it was not known to Assessee what kind of information the AO had received from the Sales Tax Department and even notices underSection 133(6)of the Act had not been issued to the supplier to make any further enquiries about supplies made by it to Assessee. The ITAT had given finding that the AO never doubted the sales made by Assessee from the said purchases. Without there being any purchases, there could not be any sales.
4. We agree with the ITAT finding that just because Assessee could not produce the dealers, the entire purchases cannot be treated as bogus purchases and the AO could have made further investigations to ascertain the genuineness of the transactions, which he failed to do.
5. Whether purchases were bogus or whether the parties from whom such purchases were made, were bogus are essentially questions of fact. In the present case, the indisputable fact is that assessee had furnished copy of the tax audit report, P&L A/c and balance-sheet. Assessee also filed purchase bills, payments made by cheques to all suppliers, their ledger accounts, PAN Card, bank statements, purchase confirmation of suppliers, etc. The AO did not accept the evidence but instead, added the amount in assessee’s income. The AO, however, has not disputed the sales made by assessee out of such purchases. The ITAT has given detailed findings for justifying addition to the extent of 12.5% only. The Courts have time and again held that only the profit element in the alleged bogus purchases amount can be treated as income, particularly, when the sales has not been disputed. The CIT(A) restricted the addition by estimating the gross profit at 12.5%. Whether that is a right estimate is a question of fact. The ITAT has accepted it. Therefore, we see no reason to interfere.
6. Appeals dismissed.
