2018 (11) TMI 1840 - AT - Income Tax

Estimation pf income - Addition u/s. 69C - Bogus purchases - CIT(A) sustaining the addition to 3% of the alleged bogus purchases - assessee has not produced any evidence to demonstrate that the purchases made from the declared sources are genuine and only submission made by the learned AR before us is the estimated profit on account of alleged bogus purchases should be reduced to the gross profit rate declared by the assessee in subsequent assessment years - HELD THAT -The aforesaid submission of the learned AR is not acceptable. It is a fact on record that the assessee has failed to prove the purchases from the declared sources which in other words demonstrates that the assessee has purchased the goods/diamonds from unknown sources/grey market thereby avoiding payments of VAT and other taxes as may be applicable to such transactions. Thus to that extent the assessee has suppressed his actual profits. The gross profit rate declared by the assessee under normal circumstances cannot be applied to unproved purchases. After considering the overall facts and circumstances of the case we are of the considered opinion that learned CIT(A) is more than reasonable in estimating the profit on the bogus purchases @3%. Therefore we are not inclined to interfere with the aforesaid decision of the learned CIT(A). Accordingly the grounds raised are dismissed.

Summary

Issues:
1. Tax effect below monetary limit as per Circular No.3/2018
2. Validity of re-opening of assessment u/s. 147
3. Sustaining addition u/s. 69C of the Act to 3% of alleged bogus purchases

Analysis:
1. The first issue pertains to the tax effect below the monetary limit as per Circular No.3/2018. The department's appeal was dismissed as the tax effect on the disputed amount was below the limit set by CBDT. The department was given the liberty to seek restoration if falling under exceptions in the circular.

2. The second issue involves the validity of re-opening of assessment u/s. 147. The assessee raised a ground against the re-opening, but the AR expressed not to press this ground, resulting in its dismissal.

3. The third issue concerns the addition u/s. 69C of the Act to 3% of alleged bogus purchases. The assessee, engaged in diamond trading, failed to prove purchases from certain parties, leading to an addition by the Assessing Officer. The CIT(A) sustained the addition at 3% of alleged bogus purchases after considering submissions and material on record.

4. The Assessing Officer had specific information indicating accommodation entries for purchases from unknown sources. The AR argued for profit estimation based on previous years' gross profit, but the Tribunal found the AR's submission unacceptable. The Tribunal upheld the CIT(A)'s decision to estimate profit at 3% due to the failure to prove purchases from declared sources, indicating suppression of actual profits.

5. The Tribunal concluded that the CIT(A) was reasonable in estimating profit at 3% on alleged bogus purchases, considering the circumstances. Therefore, the grounds raised were dismissed, and the appeals were ultimately dismissed.

6. In summary, both appeals were dismissed based on the specific issues discussed and analyzed in the judgment delivered on November 30, 2018, by the Appellate Tribunal ITAT Mumbai.