2017 (12) TMI 1467 - AT - Income Tax

Bogus purchases - profit estimation - Held that - We have given a thoughtful consideration to the order passed by the CIT(A), and find that he had by way of a very well reasoned order restricted the addition in the hands of the assessee to the extent of 12.5% of the aggregate of the suspected bogus purchases. We find no reason to take a different view, thus uphold the same. The Ground of appeal no. 1(i) &1(ii) are dismissed.

Summary

Issues Involved:
1. Restriction of addition on account of peak credit of bogus purchases to 12.5%.
2. Deletion of the addition of ?2,69,30,806/- for AY 2009-10 and ?61,81,150/- for AY 2010-11.
3. Appropriateness of the peak credit method adopted by the Assessing Officer (A.O).

Issue-wise Detailed Analysis:

1. Restriction of Addition on Account of Peak Credit of Bogus Purchases to 12.5%:
The CIT(A) restricted the addition on account of peak credit of bogus purchases to 12.5% of the bogus purchases. The revenue argued that the CIT(A) erred in doing so without appreciating the fact that the assessee could not produce any evidence in support of purchases during the course of either survey conducted at its premises or assessment proceedings. The CIT(A) observed that the assessee had not made any genuine transactions with the parties declared as hawala dealers by the Sales Tax Department. The CIT(A) relied on the judgment of the Hon’ble High Court of Gujarat in the case of Simit P. Sheth, estimating the suppressed profit of the assessee on the bogus purchases at the rate of 12.5%. The ITAT upheld the CIT(A)'s decision, noting that the A.O himself had agreed that the addition in the hands of the assessee be restricted to 12.5% of the aggregate value of the bogus purchases.

2. Deletion of the Addition of ?2,69,30,806/- for AY 2009-10 and ?61,81,150/- for AY 2010-11:
The CIT(A) deleted the addition of ?2,69,30,806/- for AY 2009-10 and ?61,81,150/- for AY 2010-11, restricting the addition to 12.5% of the aggregate value of the bogus purchases. The revenue contended that the CIT(A) failed to appreciate that the method of peak credit adopted by the A.O was the most appropriate method to avoid double addition and to bring the actual income of the assessee where there are a large number of unexplained credit and debit entries. The ITAT found that the CIT(A) had deliberated on the facts of the case and concluded that no conclusive evidence was brought on record by the A.O to prove that the assessee had incurred any unexplained expenditure. The CIT(A) noted that the entire payments to the disputed suppliers were made through banking channels and no evidence of unaccounted cash payments was brought on record. Thus, the ITAT upheld the CIT(A)'s decision to restrict the addition to 12.5% of the aggregate value of the bogus purchases.

3. Appropriateness of the Peak Credit Method Adopted by the Assessing Officer (A.O):
The A.O adopted the peak credit method to compute the addition in the hands of the assessee, concluding that the assessee had not made any genuine purchases from the parties declared as hawala dealers. The CIT(A) rejected the peak credit method, observing that the A.O had not brought any evidence on record to prove any unexplained payments made by the assessee in respect of the purchase transactions. The CIT(A) noted that the A.O had himself suggested in his remand report that the suppressed profit of the assessee on the bogus purchases may be estimated at the rate of 12.5%. The ITAT found that the CIT(A) had by way of a well-reasoned order restricted the addition in the hands of the assessee to the extent of 12.5% of the aggregate of the suspected bogus purchases, and upheld the same.

Conclusion:
The ITAT dismissed the appeals of the revenue for both AY 2009-10 and AY 2010-11, upholding the CIT(A)'s decision to restrict the addition on account of peak credit of bogus purchases to 12.5% of the aggregate value of the bogus purchases. The ITAT found no reason to take a different view, noting that the A.O himself had agreed to the 12.5% estimation and that no conclusive evidence was brought on record to prove any unexplained expenditure by the assessee.