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2017 (6) TMI 1343 - AT - Income TaxBogus purchases - applying peak credit theory - AO received specific information from the Director General of Income Tax Mumbai that the Sales Tax Department Government of Maharashtra has found that the assessee is involved in taking accommodation entries of bogus purchases - HELD THAT - It is settled legal position that once the assessee has filed all the necessary details before the AO it is for the AO to disprove the evidences submitted by the assessee and point out further defects in the books of account before making addition on account of bogus purchases. In the instant case before us the whole conclusion has been drawn by the revenue authorities merely on conjectures surmises and presumption that the assessee might have taken the hawala entries from the hawala operators and the cash so generated was used for making purchases from the gray market. No concrete findings with the necessary evidences were given by the revenue authorities for making the addition/enhancement. We are not in agreement with the conclusion drawn by the FAA that the addition as made by the AO u/s 69C was correct with the further enhancement by the ld.CIT(A). Accordingly we set aside the order of the ld.CIT(A) on this issue and direct the AO to delete the additions. GP estimation - AO observed that the GP of the assessee in the current year was 6.02% as compared to 6.36% in the immediate preceding year - AO was not convinced with the contention of the assessee that the fall in GP is due to overall market conditions and also that the sales of the assessee increased to Rs. 6, 30, 62, 994/- as compared to Rs. 6, 09, 13, 726/-/- in the immediate preceding year and made addition at the rate of 0.5% - HELD THAT - CIT(A) acted primarily on the conjecture surmises and presumptions by coming to the conclusion the assessee saved taxes from 4 to 12% by purchasing goods from gray markets and accordingly enhanced the addition by 4% of the tainted purchases of Rs. 2, 73, 65, 128/-. CIT(A) has not given any concrete basis but generalised that 4 to 12% were generally saved when the purchases were made from gray market. It is pertinent to note the fact that the assessee has also paid amount of sales tax which the so called hawala operators should have paid who provided accommodation entries to the assessee as the assessee was forced to pay the sales tax by VAT authorities. The enhancement of income is unreasonable and uncalled for in view of the facts and discussion made hereinabove. We do not find any justification or reasons for enhancement by applying GP of 4% on the bogus purchase of Rs. 2, 73, 65, 128/- as against 0.50% by the AO. We do agree with the ld.CIT(A) on the issue of confirming the GP addition in order to equalize the GP on tainted amount of purchases which is made at the rate of 0.50% on bogus purchases which comes to Rs. 1, 36, 825/-/- - Decided partly in favour of assessee.
Issues Involved:
1. Legality of the order passed under section 143(3) read with section 147 of the Income Tax Act, 1961. 2. Addition of Rs. 58,89,729/- under section 69C of the Income Tax Act, 1961, treating the same as unexplained expenditure and alleged bogus purchase. 3. Enhancement of the addition by Rs. 25,10,887/- on account of alleged bogus purchase by applying the principles of "Peak Credit". 4. Addition of Rs. 1,36,825/- and its enhancement to Rs. 10,94,605/- to equalize the gross profit margin due to alleged bogus purchases. 5. Confirmation of interest charged under sections 234A, 234B, 234C, and 234D of the Income Tax Act, 1961. 6. Confirmation of initiation of penalty proceedings under section 271(1)(c) of the Act. Detailed Analysis: 1. Legality of the Order under Section 143(3) read with Section 147: The assessee challenged the legality of the order passed by the Assessing Officer (AO) under section 143(3) read with section 147 of the Income Tax Act, 1961. However, no specific arguments or detailed analysis on this issue were provided in the judgment text. 2. Addition of Rs. 58,89,729/- under Section 69C: The AO received information from the Sales Tax Department, Government of Maharashtra, indicating that the assessee was involved in taking accommodation entries of bogus purchases. Despite the assessee submitting various documents such as purchase invoices, bank statements, and quantitative details, the AO was not convinced and made an addition of Rs. 58,89,729/- under section 69C as unexplained expenditure. The CIT(A) confirmed this addition and further enhanced it by Rs. 25,10,887/- applying the peak credit theory. The Tribunal observed that the AO and CIT(A) relied heavily on conjectures and presumptions without concrete evidence. The Tribunal noted that the assessee had provided substantial documentary evidence to prove the genuineness of the purchases. The Tribunal concluded that the addition made by the AO and the enhancement by the CIT(A) were not justified and directed the AO to delete the additions. 3. Enhancement by Rs. 25,10,887/- on Account of Alleged Bogus Purchase: The CIT(A) enhanced the addition by Rs. 25,10,887/- on account of alleged bogus purchases by applying the principles of "Peak Credit". The Tribunal found that the CIT(A) acted on conjectures and presumptions without concrete evidence. The Tribunal set aside the enhancement made by the CIT(A). 4. Addition and Enhancement to Equalize Gross Profit Margin: The AO observed a fall in the gross profit (GP) margin and made an addition of Rs. 1,36,825/- to equalize the GP on tainted and non-tainted purchases. The CIT(A) not only sustained this addition but also enhanced it to Rs. 10,94,605/- by applying a 4% GP margin on the bogus purchases. The Tribunal found that the CIT(A) generalized the savings from gray market purchases without concrete evidence. The Tribunal agreed with the CIT(A) on confirming the GP addition at 0.5% but found the enhancement to 4% unreasonable. The Tribunal partly sustained the order of the CIT(A) by deleting the enhancement and retaining the addition of Rs. 1,36,825/-. 5. Confirmation of Interest Charged under Sections 234A, 234B, 234C, and 234D: The judgment did not provide specific details or analysis regarding the confirmation of interest charged under sections 234A, 234B, 234C, and 234D. 6. Confirmation of Initiation of Penalty Proceedings under Section 271(1)(c): The judgment did not provide specific details or analysis regarding the confirmation of initiation of penalty proceedings under section 271(1)(c). Conclusion: In conclusion, the Tribunal found that the additions made by the AO and the enhancements by the CIT(A) were based on conjectures and lacked concrete evidence. The Tribunal directed the AO to delete the additions under section 69C and partly sustained the addition related to the GP margin. The appeal of the assessee was partly allowed.
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