2017 (6) TMI 1293 - AT - Income Tax

Bogus purchases - AO has received the information from the office of DIT(E), Mumbai and from the Sales Tax Department, Mumbai regarding suspicious parties who are only providing accommodation entries without doing actual business - profit estimation - HELD THAT - In this case substantial investigation has been carried out and the appellant should have come forward with a more convincing and controverting argument supporting with evidence. In a long line of judgements, which are contrary to the assessee It has been held that in such cases, the profit element embedded in the bogus purchases should be brought to tax. One such case, in line is that of Simit P. Seth (2013 (10) TMI 1028 - GUJARAT HIGH COURT) in which 12.5% of profit rate application on such like bogus purchases has been deemed to be correct. Following the same line of reasoning, It is held that in this instant case the addition has been correctly made by the appellant for failure on part of the appellant to duly produce The relevant third-party evidence and verification which was desired by the assessing officer. Accordingly the addition made is confirmed and the ground of assessee dismissed.

Summary

Issues:
Addition of &8377; 19,27,910/- on account of bogus purchases.

Analysis:
The appeal pertains to the assessment year 2009-10 where the assessee, engaged in trading pipe fittings, challenged the addition of &8377; 19,27,910/- on account of alleged bogus purchases from various parties. The Assessing Officer (AO) raised concerns regarding the genuineness of these purchases as information received indicated that some parties were involved in providing accommodation entries without actual business transactions. Despite the assessee providing ledger accounts, purchase bills, and payment details, the AO deemed the purchases as bogus due to the inability to produce all documentary evidence and unserved notices to the parties involved. The AO added the disputed amount to the total income of the assessee.

The matter was taken to the Commissioner of Income Tax (Appeals) [CIT(A)], who partially allowed the appeal. During the proceedings, the assessee did not appear, and the decision was based on the available evidence. The CIT(A) considered the lack of details regarding transportation, utilization of purchased products, absence of stock records, and non-furnishing of ledger account confirmations. The AO calculated suppressed profits at 12.5% due to insufficient evidence and non-cooperation from the assessee in providing necessary details. The CIT(A) upheld the addition based on the principle of onus of proof and preponderance of probability, citing case laws supporting the taxation of profit embedded in bogus purchases.

The appellant argued that enhancing sales by the disputed amounts would result in an unrealistic gross profit rate for the trade. However, the CIT(A) emphasized the need for convincing evidence to counter the findings. Referring to precedents like SHIMIT P SHETH, where a 12.5% profit rate was applied to such cases, the CIT(A) affirmed the addition, highlighting the failure of the appellant to produce essential third-party evidence and verification as requested by the AO. Consequently, the addition was confirmed, and the appeal was dismissed. The Judicial Member found no grounds to interfere with the CIT(A)'s order, leading to the dismissal of the appeal.