2017 (9) TMI 1581 - AT - Income Tax

Bogus purchases - addition by CIT(A) applying profit rate of 12.5% - Held that - From the record, found that assessee has shown good GP during the years under consideration. Keeping in view the normal GP being shown by the assessee engaged in the similar business, found that assessee had shown reasonable good GP. Direct the AO to restrict the addition to the extent of 10% in the A.Y.2010-11 where assessee had shown GP of 10.43%. AO is directed to restrict the addition to the extent of 8% in the A.Y.2009-10 and 2011-12 where assessee had shown GP of 11.72% and 11.89% respectively.

Summary

Issues involved:
Appeals against CIT(A)'s order upholding addition on bogus purchases based on profit rate of 12.5%.

Detailed Analysis:

Issue 1: Reopening of Assessment
The case was reopened based on information regarding accommodation entries obtained by the assessee from certain parties. AO passed the assessment order u/s 143(3) r.w.s. 147 of the IT Act.

Issue 2: Genuineness of Purchases
AO held that the assessee failed to prove the genuineness of purchases from the identified parties. The AO emphasized that the onus to prove the expenses lies on the assessee as per Indian Act sections 101, 102, and 106.

Issue 3: Treatment of Bogus Purchases
AO considered purchases from identified parties as bogus and non-genuine. The AO estimated the profit element at 12.5% of the total bogus purchase bills and added it to the assessee's income under section 69C of the act.

Issue 4: CIT(A)'s Confirmation
CIT(A) confirmed AO's order, leading to further appeal by the assessee. The argument was made that the addition based on profit element in bogus purchases should be deleted as the assessee provided all necessary documents to prove the purchases.

Issue 5: Judicial Precedents
Both parties cited judicial precedents to support their arguments. The assessee relied on cases where additions on bogus purchases were deleted due to genuine sales, while the revenue emphasized the independent inquiry conducted by the AO.

Issue 6: Tribunal's Decision
After considering all contentions and facts, the Tribunal allowed the appeals in part. The Tribunal directed the AO to restrict the addition based on profit element to 10% in one year and 8% in the other two years, considering the reasonable GP shown by the assessee.

In conclusion, the Tribunal partially allowed the appeals, emphasizing the reasonable GP shown by the assessee and directing the AO to adjust the addition percentages accordingly for the respective assessment years.