2018 (10) TMI 1795 - AT - Income Tax

Bogus purchases u/s 69C - pricing of alleged bogus purchase - HELD THAT - Having regard to the facts and circumstances of the case and more particularly in view of profits already declared on alleged bogus purchases in the vicinity of 7%, we are of the view that an estimated disallowance of 5% alleged bogus purchases over and above the profits already declared would cover possible suppression in profits and will balance the equity. Such estimation would also be in tune with the judgment of Hon ble Gujarat High Court in Gujarat Ambuja Exports . 2014 (2) TMI 1373 - GUJARAT HIGH COURT . Accordingly, we direct the AO to restrict the estimated disallowance on account of alleged bogus purchase. Appeal of the assessee is partly allowed.

Summary

Issues:
- Addition on account of alleged bogus purchase amounting to ?1,28,53,148.

Analysis:
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) concerning the assessment year 2009-10, which added ?1,28,53,148 on account of alleged bogus purchase. The Assessing Officer noted that the assessee received bogus bills of purchase from various parties, but the assessee provided evidence to support the purchases, including delivery challans, PAN of creditors, and sales tax challans. The AO, however, disregarded the evidence and added the amount to the total income of the assessee. The CIT(A) upheld the AO's decision, leading the assessee to appeal before the Tribunal.

The assessee contended that as a trader, every purchase matched with corresponding sales, and the alleged bogus purchase amount was more than 50% of total purchases. The assessee argued that without legitimate purchases, the corresponding sales and book results would be inexplicable. The assessee declared profits on sales corresponding to the alleged bogus purchases and cited relevant case law to support its position. The Tribunal observed that while purchases from bogus parties might have occurred, the purchases themselves could not be treated as bogus, especially considering the profits declared on such purchases. The Tribunal found merit in the assessee's case, emphasizing the lack of manipulation scope in purchase quantity due to the nature of the trading business. The Tribunal directed the AO to restrict the estimated disallowance to ?6,42,657 on account of alleged bogus purchase, considering the profits already declared and to maintain equity.

In conclusion, the Tribunal partially allowed the appeal, reducing the estimated disallowance on alleged bogus purchase and emphasizing the importance of considering the quantitative aspects and profits declared by the assessee in such cases.