9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2017 (11) TMI 244 - AT - Income TaxAddition on account of bogus purchase - CIT(A) in sustaining the disallowance at 25% of the bogus purchases by estimating the profit element in such purchases - Held that - Hon ble Gujarat High Court in the case of Bholanath Polyfab Pvt. Ltd 2013 (10) TMI 933 - GUJARAT HIGH COURT held that when the assessee made purchases and sold the finished goods as a natural corollary not the entire amount covered under such purchases would be subject to tax but only the profit element embedded therein. Similar view has been taken by the Hon ble Gujarat High Court in the case of CIT v. Simit P. Seth (2013 (10) TMI 1028 - GUJARAT HIGH COURT). Simply because the parties were not produced the entire purchases cannot be added as held by the Bombay High Court in the case of CIT v. Nikunj Eximp 2013 (1) TMI 88 - BOMBAY HIGH COURT . Thus, following the above decision of the Hon ble Gujarat High Court in the case of Bholanath Polyfab Pvt. Ltd (supra), We direct the Assessing Officer to restrict the disallowance to 12.5% of the purchases treated as non-genuine by estimating profit element in such bogus purchases. - Decided partly in favour of assessee.
Issues Involved:
1. Deletion of addition on account of bogus purchases. 2. Sustaining disallowance by estimating the profit element in bogus purchases. Issue 1: Deletion of Addition on Account of Bogus Purchases The Revenue challenged the deletion of ?46,73,368/- out of the total ?62,31,157/- treated as bogus purchases by the Assessing Officer (AO). The AO had determined the purchases as non-genuine based on statements from Sales Tax Authorities and the non-availability of confirmations, transport receipts, and stock registers. The Learned Commissioner of Income Tax (Appeals) [Ld.CIT(A)] restricted the addition to 25% of the alleged bogus purchases, concluding that the entire purchases could not be treated as non-genuine solely based on the Sales Tax Authorities' information. The Ld.CIT(A) emphasized that the goods were used in the business, contributing to a turnover of ?81.97 lac, and thus, the entire purchases could not be bogus. The Ld.CIT(A) relied on judicial pronouncements, particularly from the Bombay High Court in CIT v. Nikunj Eximp Enterprises (P.) Ltd., which held that non-appearance of suppliers does not justify disallowing purchases if other substantial evidence is provided. Issue 2: Sustaining Disallowance by Estimating the Profit Element in Bogus Purchases The assessee challenged the Ld.CIT(A)'s decision to sustain a 25% disallowance of the bogus purchases by estimating the profit element. The Ld.CIT(A) reasoned that while the purchases could not be entirely dismissed, the unverifiable nature of the transactions and the possibility of over-invoicing necessitated an estimation of additional profit. The Ld.CIT(A) drew on various judicial precedents, including the Gujarat High Court's decisions in CIT-1 Vs Simit P. Sheth and CIT, Vs. Bholanath Poly Fab (P) Ltd., which supported taxing the profit element in such cases rather than the entire purchase amount. The Tribunal upheld this approach but modified the disallowance rate to 12.5%, aligning with the principle that only the profit embedded in the bogus purchases should be taxed. Conclusion: The Tribunal concluded that the Ld.CIT(A) correctly identified that the entire purchases could not be deemed non-genuine based solely on the Sales Tax Authorities' information. However, considering the unverifiable nature of the purchases, it was appropriate to estimate and tax the profit element. The Tribunal directed the AO to restrict the disallowance to 12.5% of the purchases, thereby partly allowing the assessee's appeal and dismissing the Revenue's appeal. The decision was pronounced in the open court on October 25, 2017.
|
