2017 (8) TMI 1286 - AT - Income Tax

Bogus purchases - unexplained income - addition u/s 69C on the basis of estimation of % net profit- proof of genuineness - Held that - The assessee has failed to produce those parties before the AO to prove that the parties are in existence and the purchases made from those parties are genuine in nature. It is also an undisputed fact that the Sales-tax Department of Maharashtra has conducted an investigation and listed those parties as hawala operators / bogus sellers involved in the activity of providing accommodation entries without actual delivery of goods. Though the assessee filed certain evidences in the form of sales bills and payment details to prove the purchases are genuine, but failed to file further evidences in the form of delivery notes, weigh bridge slips, etc. Therefore, prima facie, the assessee failed to discharge the onus cast upon him to prove the purchases as genuine. As in the case of Vijay Proteins Ltd vs CIT (2015 (1) TMI 828 - GUJARAT HIGH COURT ) observed that additions cannot be made of total bogus purchases and what needs to be taxed is only the profit element embedded in such bogus purchases depending upon the nature of business.With the observations held in this case , therefore we directed the AO to estimate net profit of 20% on alleged bogus purchases made from those parties in present case - Appeals of revenue are partly allowed.

Summary

Issues:
Assessment of alleged bogus purchases as unexplained income.

Analysis:
1. The appeals by the revenue were against the common order of the CIT(A)-24, Mumbai for the assessment years 2010-11 and 2011-12. The case involved the assessment of alleged bogus purchases made by the assessee company engaged in software development and consulting.

2. The Assessing Officer (AO) issued a show cause notice based on information from the Investigation Wing that the assessee obtained bogus purchase bills from parties listed as hawala operators. The assessee provided explanations and documents to prove the genuineness of the purchases, but the AO considered the purchases as bogus due to lack of further evidence like delivery notes and stock registers.

3. The CIT(A) observed that the assessee failed to prove the existence of suppliers and transactions were found to be bogus. The CIT(A) directed the AO to estimate the profit element embedded in the purchases, citing judicial precedents for estimating net profit ranging from 12.5% to 25% depending on the nature of the business.

4. The revenue appealed, arguing that the profit should be estimated at 15% on the total alleged bogus purchases. However, the Tribunal noted that the AO failed to conduct an independent inquiry and accepted the possibility of purchases from the open market. The Tribunal directed the AO to estimate net profit at 20% on the alleged bogus purchases.

5. The Tribunal differentiated the present case from the decision relied upon by the revenue, emphasizing that the assessee had provided evidence to prove the purchases. Therefore, the Tribunal concluded that a 20% net profit estimation was appropriate based on the circumstances of the case.

6. Both appeals filed by the revenue were partly allowed, and the net profit on alleged bogus purchases was estimated at 20% for each assessment year. The Tribunal pronounced the order on June 30, 2017.