2017 (12) TMI 785 - AT - Income Tax

Bogus purchases - Held that - The Hon ble Gujrat High Court in CIT vs. Simit P. Seth (2013 (10) TMI 1028 - GUJARAT HIGH COURT) upheld the decision of the Tribunal and sustained the addition 12.5% of the total bogus purchases holding that only profit element embedded in such purchases can be added to income of the assessee. Hence, following the principles law laid down by the Hon ble High Courts of Bombay and Gujarat, discussed above, we uphold the order of the Ld. CIT(A) and dismiss all the grounds of appeal of the assessee and direct the AO to make addition @ 12.5% of the total amount of bogus purchases made by the assessee to the income of the assessee.

Summary

Issues Involved:
Assessment of income based on alleged bogus purchases, validity of addition to income, application of profit element in disputed purchases, interpretation of legal precedents regarding bogus purchases, determination of addition based on percentage of questioned purchases.

Analysis:
1. The appeal was filed against the order passed by the Commissioner of Income Tax (Appeals) pertaining to the Assessment Year 2011-12, where the addition to income was made by the Assessing Officer based on alleged bogus purchases made by the assessee.

2. The Assessing Officer made additions to the income of the assessee due to unverified purchases from certain entities, which were found to be involved in issuing bogus bills without supplying goods. The assessee failed to produce the parties or provide satisfactory details to prove the genuineness of the transactions.

3. The Commissioner of Income Tax (Appeals) partly allowed the appeal and restricted the addition to 12.5% of the disputed purchases made by the Assessing Officer, considering the profit element embedded in such purchases.

4. The grounds of appeal raised by the assessee included challenging the addition made, citing relevant legal decisions, questioning the calculation of the purchase amount, and alleging errors in the assessment order.

5. During the proceedings, the counsel for the assessee argued against the sustained addition, claiming that it was contrary to legal principles established by High Courts and ITAT decisions. The counsel emphasized the genuineness of transactions supported by purchase invoices, bank statements, and payment proofs.

6. The Departmental Representative supported the decision of the Commissioner of Income Tax (Appeals), asserting that the addition was justified due to the assessee's failure to prove the authenticity of the transactions.

7. The Tribunal noted that the Assessing Officer did not reject the sales shown by the assessee, indicating that the entire amount of purchases could not be added to the income without proper justification. It was observed that the purchases might have been made from the grey market without tax payment, warranting addition based on the profit element.

8. Referring to legal precedents, the Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) to add 12.5% of the questioned purchases to the income of the assessee, following the principles laid down by the High Courts of Bombay and Gujarat regarding additions based on profit elements in disputed purchases.

In conclusion, the appeal filed by the assessee for the assessment year 2011-12 was dismissed, and the addition to income based on a percentage of bogus purchases was upheld by the Tribunal.