2017 (10) TMI 1451 - AT - Income Tax

Bogus purchases u/s 69C - AO estimated profit on alleged bogus purchases at 12.5% - CIT(A) enhancing the addition of bogus purchases to 100% - HELD THAT - There is merit in the contentions of A.R. Since the quantity details have been reconciled and since it has also been certified by the tax auditor in my view there is no necessity to disallow entire amount of alleged bogus purchases. As noticed that the AO had estimated the profit element embedded in the bogus purchases at 12.50% and our view it appears to be reasonable. Accordingly set aside the order passed by CIT(A) on this issue and direct the AO to sustain addition to the extent of 12.50% of the value of purchases. - Appeal of the assessee is partly allowed.

Summary

Issues:
Enhancement of addition of bogus purchases to 100% by the learned CIT(A) - AY 2007-08.

Analysis:
The appeal before the Appellate Tribunal ITAT Mumbai was against the decision of the learned CIT(A) to enhance the addition of bogus purchases to 100%. The assessee, engaged in trading steel, had been alleged to have made bogus purchases from Siddhivinayak Steel amounting to ?109.60 lakhs. The Assessing Officer estimated profit on these alleged bogus purchases at 12.5% and added it to the total income of the assessee. The assessee provided various documents to support the genuineness of the purchases, including purchase bills, ledger accounts, and payment details. However, the CIT(A) found discrepancies in the evidence presented by the assessee, leading to the decision to disallow the entire amount of the purchases made from Siddhivinayak Steel.

Before the CIT(A), the assessee submitted a tax audit report with quantity details but failed to produce the stock register. The CIT(A) observed that the quantity details provided did not include specifics about "MS pipe," an item purchased from Siddhivinayak Steel. Despite the assessee's explanation that the details were included under a different category, the CIT(A) rejected this argument. Consequently, the CIT(A) upheld the Assessing Officer's decision to disallow the entire amount of ?109.60 lakhs. Dissatisfied with this decision, the assessee appealed to the Tribunal.

During the Tribunal hearing, the assessee's representative argued that the purchases and sales had been reconciled, disputing the CIT(A)'s presumption that all invoices were not provided. The representative highlighted that the tax audit report contained quantity details derived from the stock register, making the non-production of the stock register an unjustifiable reason for adverse action. On the other hand, the Department supported the CIT(A)'s decision.

After considering the arguments, the Tribunal found merit in the assessee's contentions. The reconciled quantity details, certified by the tax auditor, indicated that disallowing the entire amount of bogus purchases was unnecessary. The Tribunal deemed the Assessing Officer's estimation of 12.5% profit on the bogus purchases as reasonable. Consequently, the Tribunal set aside the CIT(A)'s decision and directed the Assessing Officer to sustain the addition at 12.5% of the purchase value. As a result, the appeal of the assessee was partly allowed, with the order pronounced on 18.10.2017.