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Delhi ITAT Allows Five Percent on of HSB Home Solutions
The (ITAT) has provided partial relief to HSB Home Solutions Ltd. in a case involving bogus purchases and sales. While upholding the reopening of the assessment for the 2012-13 fiscal year, the Tribunal directed the Assessing Officer to apply a 5% on the company's total turnover instead of adding the entire purchase value as undisclosed income.
The Genesis of the Dispute
The case originated from a survey conducted on , at the premises of one Ashok Kumar Gupta, who allegedly admitted to running a racket of providing for bogus sales and purchases through his proprietary concern, M/s Gayatri Maa Enterprise. HSB Home Solutions was among the entities that had allegedly engaged in such transactions, totaling purchases of Rs. 5.81 crore and sales of Rs. 5.94 crore.
The original assessment under had been completed on , with a cryptic order that simply noted the company had "no business activity" during the year—a finding that the ITAT later found "strange" given the substantial transactions and declared profit of Rs. 13.34 lakh.
Based on the survey revelations, the Assessing Officer reopened the case under and added the entire bogus purchase amount of Rs. 5.81 crore to the company's income. The Commissioner of Income Tax (Appeals) upheld this addition, prompting HSB Home Solutions to appeal before the ITAT.
Arguments and Counter-Arguments
The assessee's counsel, , argued that since both purchases and sales were held to be bogus, it was unfair to treat only the purchases adversely. He pointed out that the company had already disclosed a profit of Rs. 13.34 lakh from these transactions, which was ignored by the authorities. He further contended that the transactions were backed by banking channels and bills, and that the inability to locate the parties did not automatically render them bogus.
On the other hand, the Revenue's representative, , highlighted that the original assessment order was perfunctory and did not examine the genuineness of the transactions. He argued that the assessee had failed to establish physical movement of goods or prove the existence of the parties, and that the survey information provided fresh material to justify reopening.
Reopening Held Valid
The ITAT first addressed the jurisdictional challenge. It noted that the original assessment order contained a "cryptic finding" that the company had no business activity, despite clear evidence of substantial purchases and sales. Relying on the 's decisions in and , the Tribunal held that the survey information constituted fresh material that gave the Assessing Officer reason to believe income had escaped assessment. The reopening was therefore valid and not a mere .
The Core Issue: Inconsistent Treatment of
On merits, the ITAT found merit in the assessee's argument that adding only the purchase value was inconsistent when both purchases and sales were alleged to be bogus. The Bench observed:
"We find force in the Ld. AR's contention that the profit shown from such allegedly has not been considered and the sales would appear to be considered genuine if we simply go by the logic that has been adopted by the Ld. AO, in as much as out of bogus sales and purchases only the purchases have been treated adversely."
The Tribunal rejected the assessee's argument that transactions should be accepted as genuine merely because payments were routed through banking channels. It emphasized that the assessee must establish the of transactions, including physical movement of goods and existence of parties.
The Remedy: A 5%
Instead of adding the entire purchase value, the ITAT directed the Assessing Officer to apply a 5% on the total turnover of Rs. 5.94 crore. This approach, the Tribunal noted, was conservative and aligned with the 's decision in , where the addition was restricted to a percentage of disputed transactions. The Bench directed that the profit already disclosed by the assessee (Rs. 13.34 lakh) be given due credit.
Final Order
The appeal was partly allowed. The Assessing Officer was instructed to recompute the assessable income based on the 5% , ensuring that the profit element from the is taxed rather than the entire purchase value. This decision underscores the principle that where both purchases and sales are bogus, the tax authorities must adopt a holistic approach rather than selectively taxing only one side of the transaction.
