2017 (1) TMI 1798 - AT - Income Tax

Estimation of income - Bogus purchases - HELD THAT - We find that it is not the case of the Revenue that the NP rate VAT totals to 12.5%. Hon ble Gujarat High Court approved the said 12.5% in the case of Simit P Seth 2013 (10) TMI 1028 - GUJARAT HIGH COURT considering the nature of business activities which falls in the real estate. The applicable VAT rate is also different in State of Gujarat. Accordingly we direct the Assessing Officer to restrict the disallowance to a round figure of 7%. VAT figures are considered here for the reason that the alleged bogus purchases from the grey market is done without sale bills causing loss to the State Government exchequer. The presumption is that the alleged purchases of materials is done without bills. Accordingly we confirm the addition to the extent of 7% of the said purchases of Rs. 53.16 lakhs. Addition should be restricted. Accordingly AO is directed. Thus the ground is partly allowed. Addition on account of commission - argument of the assessee that CIT (A) enhanced assessment without giving a notice or an opportunity to the assessee - HELD THAT - This issue is not settled and the additions of this kind are unsustainable in law in view of the judgments in the cases of Bikram Singh 2016 (4) TMI 822 - ITAT DELHI Apex Court judgment in the case of CIT vs. Shapoorji Pallonji Mistry 1962 (2) TMI 12 - SUPREME COURT and CIT vs. Rai Bahadur Hardutroy Motilal Chamania 1967 (4) TMI 8 - SUPREME COURT - Admittedly the CIT (A) made this enhancement of assessment without granting opportunity to the assessee. Effect of this failure results in deletion of the enhancement. Accordingly this part of the ground is allowed in favour of the assessee.

Summary

Issues:
- Appeal against order of CIT (A) regarding bogus purchases and commission addition for assessment year 2010-2011.

Bogus Purchases Issue:
The appeal concerns the addition of Rs. 53.16 lakhs for bogus purchases and commission of Rs. 53,166. The AO added the entire purchases under section 69C, disregarding relevant High Court judgments. The CIT (A) upheld the addition. The assessee argued non-compliance with binding judgments. The tribunal noted the assessee's NP varying from 2% to 2.35% and the applicable VAT rate of 4%. Considering the Gujarat High Court judgment, the tribunal restricted the disallowance to 7% of the bogus purchases. The tribunal emphasized the importance of VAT figures due to the absence of sale bills, leading to loss for the State Government. The addition was confirmed to the extent of 7% of the purchases, directing the AO accordingly. The ground was partly allowed based on these considerations.

Commission Addition Issue:
Regarding the commission addition, the assessee contended that the CIT (A) enhanced the assessment without providing a notice or opportunity, contrary to section 251(2) of the Act. The tribunal highlighted that such enhancements are unsustainable in law without granting the assessee a chance to respond. Citing relevant judgments, including one by the Apex Court, the tribunal ruled in favor of the assessee, leading to the deletion of the enhancement. Consequently, this part of the ground was allowed in favor of the assessee. Overall, the appeal was partly allowed by the tribunal.