2018 (12) TMI 1995 - AT - Income Tax

Estimation of income - bogus purchases - HELD THAT - As in course of proceedings before the departmental authorities the assessee could not prove the genuineness of purchases claimed to have been made from the parties who have been identified as hawala operators by the Sales Tax Department, Government of Maharashtra. AO has not disbelieved the fact that purchases were made by the assessee from some other sources and corresponding sales have also been effected. For that reason only he has estimated the profit @10%, which has been sustained by the Commissioner (Appeals). Therefore, we are of the view that estimation of profit @5% on the alleged bogus purchases would be reasonable. Accordingly, we direct the Assessing Officer to restrict the addition to 5% of the bogus purchases. Assessee's appeal is partly allowed.

Summary

Issues involved: Addition on account of bogus purchases.

The only issue in this appeal is the addition made of ` 12,95,407 on account of bogus purchases for the Assessment Year 2009-10.

Facts:
- The assessee, engaged in trading chemicals, filed a return of income declaring total income of ` 4,38,100 for the year.
- The Assessing Officer reopened the assessment under section 147 of the Income Tax Act based on information received regarding certain purchases claimed by the assessee.
- The Assessing Officer found that purchases of ` 1,29,54,067 claimed by the assessee were not genuine.
- The assessee failed to provide authentic evidence to prove the genuineness of the purchases.
- Notices issued under section 133 (6) of the Act returned unserved.
- The Assessing Officer estimated profit at 10% of the bogus purchases, amounting to ` 12,95,407, which was added to the income of the assessee.
- The assessee appealed to the Commissioner (Appeals) but the addition was sustained.

Arguments:
- The Authorized Representative argued that the profit rate of 10% was high and excessive, suggesting that profit on the alleged bogus purchases should be estimated at a reasonable rate.
- The Departmental Representative supported the observations of the Assessing Officer and Commissioner (Appeals).

Decision:
- The Appellate Tribunal considered the submissions and facts on record.
- It was noted that the purchases were made from parties identified as hawala operators, but the Assessing Officer did not doubt that purchases were made from other sources.
- The Tribunal deemed that estimating profit at 5% on the alleged bogus purchases would be reasonable.
- The Assessing Officer was directed to restrict the addition to 5% of the bogus purchases.
- The decision was based on the specific facts of the case.
- The appeal was partly allowed, and the order was pronounced on 14.12.2018.