2017 (9) TMI 1935 - AT - Income Tax

Estimation of income - bogus purchases - CIT(A) restricted the addition to 10% of the amount of bogus purchases - HELD THAT - Hon ble Bombay High Court In CIT Vs. Nikunj Eximp Enterprises Pvt. Ltd. 2013 (1) TMI 88 - BOMBAY HIGH COURT has held that merely because the suppliers had not appeared before the Assessing Officer or the CIT (A) one could not conclude that the purchases were not made by the respondent/assessee. The Hon ble Gujrat High Court in CIT vs. Simit P. Seth 2013 (10) TMI 1028 - GUJARAT HIGH COURT upheld the decision of the Tribunal and sustained the addition 12.5% of the total bogus purchases holding that only profit element embedded in such purchases can be added to income of the assessee. We uphold the decision of the Ld. CIT(A) and in the interest of justice, restrict the addition to 10% of the total amount of bogus purchases made by the assessee during the year relevant to the assessment year under consideration. We accordingly dismiss all the grounds of the appeal of the revenue and direct the AO to compute the addition in terms of this order.

Summary

Issues:
Assessment year 2009-2010 - Bogus purchases - Addition to income - Restriction to 10% - Evidence submission - Legal principles application

Analysis:
The appeal pertains to the assessment year 2009-2010 involving trading of iron and steel goods. The assessee declared a total income of ?2,55,220, but the assessment under section 143(3) resulted in additions under sections 68 and 143(3). Subsequently, the assessment was reopened under section 147 based on information from the Sales Tax Department regarding bogus bills amounting to ?61,90,074 obtained by the assessee. Despite submissions and evidence provided by the assessee, including bank statements and details of transactions, the AO added the entire amount of bogus purchases to the income.

In the first appeal, the CIT(A) partly allowed the appeal, restricting the addition to 10% of the total bogus purchases. The revenue challenged this decision, citing various legal precedents and the lack of primary evidence like Octroi receipts and Delivery Challans. The revenue argued that the CIT(A) should have upheld the AO's decision due to the absence of crucial documents.

Conversely, the assessee contended that since the sales were accepted, a 100% addition was unwarranted. The assessee provided purchase bills, party details, and bank statements to establish the genuineness of transactions. Relying on legal judgments, the assessee supported the CIT(A)'s decision to limit the addition to 10% of the bogus purchases.

Upon review, the ITAT upheld the CIT(A)'s decision, emphasizing the evidence on record and legal principles. Referring to relevant High Court judgments, the ITAT affirmed the 10% restriction on the addition of bogus purchases. Citing precedents from the Hon'ble Bombay and Gujarat High Courts, the ITAT concluded that only the profit element embedded in such purchases should be added to the assessee's income. Consequently, the ITAT dismissed the revenue's appeal and directed the AO to compute the addition accordingly.

In conclusion, the ITAT's judgment for the assessment year 2009-2010 affirmed the CIT(A)'s decision to restrict the addition to 10% of the total bogus purchases, in line with legal principles and precedents, ultimately dismissing the revenue's appeal.