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2017 (5) TMI 1211 - AT - Income TaxBogus purchases - CIT(A) restricted the addition to the extent of 12.5% - Held that - CIT(A) found that purchases themselves were not bogus but the purchase parties shown in the books were bogus therefore entire purchases from these six parties cannot be added as bogus. Accordingly he taxed the profit element embedded in such purchases. By following the order of Gujarat High Court in COMMISSIONER OF INCOME TAX - I Versus BHOLANATH POLY FAB PVT LTD. 2013 (10) TMI 933 - GUJARAT HIGH COURT the CIT(A) upheld the addition to the extent of 12.5% of such purchases. The detailed finding so recorded by CIT(A) has not been controverted by learned DR by bringing any positive material on record. Accordingly we do not find any reason to interfere in the order of CIT(A) - Decided against revenue
Issues:
- Determination of the genuineness of purchases made by the assessee from certain suppliers. - Disallowance of purchases by the Assessing Officer and subsequent appeal by the Revenue. - Assessment of profit element embedded in the purchases by the CIT(A). - Appeal by the Revenue against the CIT(A)'s order. Analysis: Issue 1: Determination of the genuineness of purchases The Assessing Officer (AO) found that the assessee had made purchases from suppliers identified as bogus by the Maharashtra Value Added Tax (MVAT) Department. The AO added the entire amount of such purchases to the assessee's income. However, the CIT(A) observed that the AO did not provide sufficient evidence to establish that the purchases were actually bogus. The CIT(A) noted that the assessee's utilization of the purchased material, payment through account payee cheques, and absence of evidence indicating that payments were received back by the assessee. The CIT(A) concluded that the purchases themselves were not bogus, but the parties shown in the books were questionable. Issue 2: Disallowance of purchases and subsequent appeal The CIT(A) restricted the addition to 12.5% of the purchases, considering the profit element embedded in the transactions. The Revenue appealed against the CIT(A)'s order, arguing that the entire purchases from the identified parties should be disallowed. However, the Tribunal upheld the CIT(A)'s decision, citing the Gujarat High Court's rulings and emphasizing that only the profit element should be taxed, not the entire purchase amount. Issue 3: Assessment of profit element The CIT(A) based the assessment of the profit element on the findings of the Gujarat High Court and previous ITAT decisions. The CIT(A) considered the nature of the business and estimated the profit at 12.5% of the alleged bogus purchases, directing the AO to restrict the addition to that amount. This approach was supported by the Tribunal, which found no reason to interfere with the CIT(A)'s detailed findings. Issue 4: Appeal by the Revenue The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order and emphasizing that the purchases themselves were not bogus, but the parties involved were questionable. The Tribunal upheld the addition of 12.5% of the purchases as the profit element embedded in the transactions, in line with the CIT(A)'s decision and the principles established by the Gujarat High Court. In conclusion, the Tribunal upheld the CIT(A)'s decision to restrict the addition to the profit element embedded in the purchases, emphasizing the need for concrete evidence to establish the genuineness of transactions and the importance of considering the nature of the business in determining the tax implications of such transactions.
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