INCOME TAX ACT, 1961

Section 153A, 69 and 132(4)

Search and seizure - Assessment under section 153A - Surrender of income - Statement under section 132(4) used to make addition of bogus purchases of steel

There was undertaken at premises of assessee, which was converted into search. During the course of search the assessee The assessee admitted to the disallowance of the expenses of Rs. 36,01,34,587 claimed on account of such purchases over the years and also agreed to offer the same as an additional income. In the statement under section 132(4), the assessee was confronted with his statement recorded under section 133A in which he made disclosure of Rs. 36.01 crore on account of disallowance of purchases. In response to question no. 18 in the statement under section 132(4), the assessee agreed with such surrender and agreed to offer disallowance in the concerned years. The amount of such purchases relating to the assessment year 2007-08 stood at Rs. 99,41,075. The assessee filed return under section 153A of the Act for the year under consideration by including the said amount of Rs. 99.41 lakh in the total income declared. However, during the course of assessment proceedings, the assessee contended that all the purchases were genuine and hence, no addition should be made. In view of the fact that the assessee had himself offered Rs. 99,41,075 as additional income on account of bogus purchases in the course of search relating to the year under consideration and included the same in his return of income, the AO disregarded the assessee's computation and added Rs. 99,41,075 to the income originally determined under section 143(3) of the Act by rejecting the assessee's contention for reduction in the amount of income offered in the return under section 153A on account of such a mistaken notion. Held: Assessee has engaged in the business of manufacture of sugar machinery. Steel is a raw material for the manufacturing of the machinery. It is obvious that without raw material there cannot be any finished products. The assessee has filed stock details before the authorities which show that purchases for the disputed quantity were, in fact, made. The fact that the assessee made genuine sales, has not been disputed by the Revenue. In such a scenario, even if one accept the contention of the Revenue that the purchases were bogus, still the entire amount of purchases cannot be added in view of the fact that some purchases must have, in fact, been made which got eventually consumed in the process of manufacturing. In such circumstances, only the profit (excessive cost element) embedded in such bogus purchases can be included in the total income of the assessee, which, in the peculiar facts and circumstances of the instant case, has estimated at 10% of the bill amounts. Once the assessee admitted that the bills of purchase of steel were not proper, he cannot later on retract from the same. But in so far as his statement about the taxability of such sum was concerned, it was a legal statement and also a legal consequence of the factual aspect admitted by him, which needs to be separately examined as per the provisions of the law. As the assessee in the instant case had challenged the suo motu inclusion of such an income before the AO, there was no fetters on the powers of the AO in not examining if the same was actually liable to be fully or partly included in the total income. The contention raised by the DR in this regard was, therefore, jettisoned. The assessee was engaged in the business of manufacture of sugar machinery. Steel is a raw material for the manufacturing of the machinery. It is obvious that without raw material there cannot be any finished products. The assessee had filed stock details before the authorities which show that purchases for the disputed quantity were, in fact, made. The fact that the assessee made genuine sales, had not been disputed by the Revenue. In such a scenario, even if Tribunal accept the contention of the Revenue that the purchases were bogus, still the entire amount of purchases cannot be added in view of the fact that some purchases must have, in fact, been made which got eventually consumed in the process of manufacturing. In such circumstances, only the profit (excessive cost element) embedded in such bogus purchases can be included in the total income of the assessee, which, in the peculiar facts and circumstances of the instant case, was estimated at 10% of the bill amounts. The assessee gets relief by means of deletion of addition of 90% of Rs. 99,41,075 and accordingly the addition @ 10% at Rs. 9,94,107 was sustained.

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