2017 (9) TMI 729 - AT - Income Tax

Bogus purchases from alleged hawala operators - information received from DGIT (Inv) further supported by the list prepared by Maharashtra Sales-tax department - estimation of net profit on bogus purchases - Held that - In the absence of any finding as to the incorrectness in books of account and stock registers, purchases cannot be doubted. Under these facts and circumstances it can be concluded that the assessee has obtained bills to reduce profits. Hence, what needs to be taxed in this case is only the profit element embedded in such purchases, but not the entire purchases from the above parties. Hon ble Gujarat High Court in the case of CIT vs Smit P Sheth (2013 (10) TMI 1028 - GUJARAT HIGH COURT) has taken a view that no uniform yardstick can be applied for estimation of net profit which depends upon facts and circumstances of each case. The Hon ble High Court further observed that in such cases, the profit element embedded in such purchases can only be added to the income of the assessee. The ITAT, Mumbai Benches in several cases has upheld estimation of net profit at 12.5% on such purchases. Therefore, considering the overall facts & circumstances of the case and also relying upon the ratio of case laws discussed above, we are of the view that in the case of bogus purchases, only profit element embedded in such purchases needs to be taxed but not total purchases. Accordingly, we direct the AO to estimate net profit at 12.5% on total alleged bogus purchases. - Decided in favour of assessee partly .

Summary

Issues involved:
Appeals against CIT(A) orders for assessment years 2007-08, 2008-09 & 2009-10 - Addition of alleged bogus purchases from hawala operators and reduction of disallowance by CIT(A).

Analysis:
The appeals were consolidated due to common facts and issues. The AO reopened assessment based on information from DGIT (Inv) regarding accommodation entries from a benami concern. Assessee filed returns, but AO added unexplained expenditure for purchases from alleged hawala operators. Assessee's submissions included purchase invoices, export documents, and bank statements to prove genuineness. CIT(A) relied on precedents and directed a 30% profit estimate on alleged bogus purchases. Assessee contested, emphasizing business purpose of purchases and evidence provided.

The AO's decision was based on information from authorities and admissions by operators providing accommodation entries. Despite evidence provided by the assessee, notices to suppliers were returned unserved, raising doubts on the genuineness of purchases. The AO treated purchases as bogus due to involvement of accommodation entry providers. CIT(A) upheld the AO's decision, considering lack of responses from suppliers and absence of discrepancies in accounts. The CIT(A) directed a 30% profit estimate on alleged bogus purchases, citing precedents.

During the appeal, the assessee argued against the profit estimate, emphasizing the business nature of purchases and sufficiency of evidence provided. The revenue supported the AO's decision, citing the suppliers' admission of providing accommodation entries. The Tribunal analyzed the facts, noting the lack of responses from suppliers and the involvement of accommodation entry providers. Considering precedents, the Tribunal directed a 12.5% profit estimate on the alleged bogus purchases for all assessment years.

In conclusion, the appeals were partly allowed, with the Tribunal directing a 12.5% profit estimate on the total alleged bogus purchases for all assessment years. The decision was based on the facts, precedents, and the sufficiency of evidence provided by the assessee. The Tribunal's judgment highlighted the importance of substantiating purchases and the need to estimate only the profit element in such transactions.