|Question And Answer|
|Subject:||Disallowance of Bogus purchases|
|Answered by:||Dr .K. Shivaram Senior Advocate|
|Tags:||Bogus Purchases, Reassessment, search|
|Date:||April 2, 2022|
Assesee is pvt limited co engaged in the manufacturing of steel billets. Search action U/sec. 132 was conducted In the month of May 2021. Notice u/Sec. 148 dated 28.03.2021 for A.Y. 2017-18 on the basis of information of Sales tax department about purchases one party. Assessee could not upload the return on due to problem at site , also have evidence for that, as complaint also made. So ultimately on 1.03.2022, assesee has submitted return manually to consider the original return filed u/sec.139(1) as return in response to Notice u/Sec. 148. Then asked the reasons and took objections. AO passed the speaking order rejecting objection and issued show cause Notice on 23.03.2022 asking as to show cause as to why purchases from few other parties should not be disallowed and ask to submit reply by 28.03.2022. Purchases from these parties are almost 80% of total purchases. Assessee has submitted reply and also stated that time may be given and made reference to JCIT u/Sec. 144A explaining all facts and give direction for not using any material found in search as this year again will be covered in search proceedings and JCIT also gave the directions to AO on 30.03.2022 for not using search material in this assessment. However AO passed the assessment order disallowed purchases which are almost 80% of total purchases on following grounds
1. Assessee co has not responded to 148 in time and therefore proceedure as laid down in decision of GKN drive shaft could not be followed.
2. Summonce issued to parties were not responded and therefore these purchases are bogus ignoring the submissions given by the Assessee co
3. Directions of JCIT u/Sec. 144A have been complied as he has not made addition by using material found in search.
whether AO action is justified ?
when Notice u/Sec. 148 reference is only for one party about bogus purchases?
when he has not rejected books and accepted total sales
when few parties have responded to summonce which were issued at flag end of tine barring date
The assesseee can file an appeal before the CIT(A) may challenge the reassessment proceedings . If it is search related matter , the provisions of section 153A or 153C is applicable and not provisions of section 147 or 148 of the Act . Refer Shri Mohan Thakur v .ACIT (ITANo. 7413 /Mum/ 2017 dt 9 -1 -2020 ( Mum) ( Trib) , ITO v. Arun Kumar Kapoor ( 2011) 16 taxmann.com 373 ( Amritsar )( Trib) , G. Koteswara Rao v. DCIT (2015 ) 64 taxmmann.com 159 ( Vishakha ) ( Trib)
If the assessee is able to show the quantity of purchase and sales the entire purchases cannot be added as undisclosed investment , the profit element of alleged bogus purchases can only be added . PCIT v. JK Surface Coatings Pvt Ltd ( Bom ) ( HC ) www.itatonline .org . ( ITA No 1850 of 2017 dt 28 -10 2021) ( AY.2019 -10 )
It is desirable for the assessee to get the copy of the statement recorded by the parties . If the assessee can able to get the confirmation from the parties , the assesee can produce the same by making an application under rule 46A of the Rules .
Each case has to be decided on facts , the tax consultants can guide properly by studying the relevant documents .
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