2017 (11) TMI 1941 - AT - Income Tax

Estimation of income - Bogus purchases - CIT(A) applying 12.50% of the purchases as profit embedded on the purchase - HELD THAT - The sale is not disputed. The assessee might have purchased the said material from the grey market to avoid the Sales Tax, VAT and Excise etc. The profit embedded in the said purchase has been taken into consideration to the extent of 12.5% in addition to the regular profit offered to tax. CIT(A) has also considered the number of cases while deciding the matter of controversy but the yardstick taken into consideration by the CIT(A) in the case of of CIT Vs. Simit Sheth 2013 (10) TMI 1028 - GUJARAT HIGH COURT the percentage of profit embedded into the purchase to the extent of 12.5% has rightly been taken into consideration to the facts and circumstances of the case. Accordingly, we are of the view that the CIT(A) has decided the matter of controversy judiciously and correctly which is not required to interfere with at this appellate stage. Accordingly, this issue is decided in favour of the revenue against the assessee.

Summary

Issues Involved:
1. Bogus Purchases and Addition under Section 69C of the Income Tax Act.
2. Charging of Interest under Sections 234B, 234C, and 234D.
3. Initiation of Penalty Proceedings under Section 271(1)(c).

Issue-wise Detailed Analysis:

1. Bogus Purchases and Addition under Section 69C of the Income Tax Act:
The primary issue revolves around the addition to the extent of 12.5% on account of bogus purchases amounting to ?1,63,35,816 under Section 69C of the Income Tax Act. The Assessing Officer (AO) raised the addition on account of bogus purchases from six parties, which were not traceable. The assessee failed to prove the genuineness of the transactions. The AO treated the peak credit of ?1,63,35,816 as unexplained expenditure and added it to the income of the assessee. The CIT(A) restricted the addition to 12.5% of the bogus purchases, considering the profit element embedded in such purchases. The CIT(A) relied on various judicial precedents, including the Gujarat High Court's decision in CIT vs. Simit Sheth, which held that only the profit element in such bogus purchases should be taxed. The Tribunal upheld the CIT(A)'s decision, stating that the assessee might have purchased the material from the grey market to avoid taxes, and the profit embedded in the bogus purchases was rightly considered at 12.5%. The Tribunal found the CIT(A)'s decision judicious and correct, and thus, no interference was required at the appellate stage.

2. Charging of Interest under Sections 234B, 234C, and 234D:
The assessee raised a ground regarding the charging of interest under Sections 234B, 234C, and 234D. The Tribunal noted that the charging of interest under these sections is consequential and mandatory, not discretionary, as held by the Supreme Court in the case of Anjuman N Ghaswala and CIT vs. Hindustan Bulk Carriers. Therefore, this ground of appeal was dismissed as it was consequential in nature.

3. Initiation of Penalty Proceedings under Section 271(1)(c):
The assessee challenged the initiation of penalty proceedings under Section 271(1)(c). The Tribunal observed that this ground of appeal is premature as no penalty had been imposed by the AO. There is no remedy against mere initiation of penalty proceedings under Section 246A of the Income Tax Act. The assessee was given the liberty to approach the Tribunal if such penalty is imposed in the future. Hence, this ground of appeal was dismissed as premature.

Conclusion:
The Tribunal dismissed both the appeals filed by the assessee and the revenue. The decision of the CIT(A) to restrict the addition to 12.5% of the bogus purchases was upheld, and the grounds regarding the charging of interest and initiation of penalty proceedings were dismissed as consequential and premature, respectively. The order was pronounced in the open court on 27.11.2017.