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2018 (2) TMI 735 - AT - Income TaxAddition of bogus purchases u/s 69C - genuineness of purchases - Held that - AO was erred in making 100% addition towards alleged bogus purchases u/s 69C of the Act. CIT(A), without appreciating the facts has gone on a different footing and estimated gross profit by adopting assessment year 2013-14 gross profit to sustain the addition made by the AO towards alleged bogus purchases. Though the AO has made addition on the basis of information received from sales-tax department failed to make any further enquiries in the light of evidences filed by the assessee to ascertain genuineness of purchases. Therefore, we are of the considered view that the case law relied upon by the Ld.DR is not applicable to the facts of present case. In this view of the matter and considering the ratios of the case laws discussed by us, we direct the AO to estimate net profit on total alleged bogus purchases at 12.5% for AYs 2010-11 and 2011-12.
Issues Involved:
1. Reopening of assessment under section 147. 2. Addition towards alleged bogus purchases under section 69C. 3. Estimation of gross profit versus net profit on alleged bogus purchases. Detailed Analysis: 1. Reopening of Assessment under Section 147: The assessee challenged the reopening of the assessment under section 147 on the grounds that the Assessing Officer (AO) lacked independent and valid reasons to believe that income had escaped assessment. The CIT(A) upheld the reopening, stating that the information from the investigation wing clearly indicated that the assessee was a beneficiary of bogus purchase bills from suspicious dealers listed by the Maharashtra Sales-tax department. The Tribunal noted that during the hearing, the assessee did not press this ground, leading to the dismissal of this challenge. 2. Addition Towards Alleged Bogus Purchases under Section 69C: The AO reopened the case based on information from the investigation wing, indicating that the assessee had made purchases from parties involved in providing bogus purchase bills. The AO observed that these parties admitted to issuing bills without delivering goods and refunding cash after deducting their commission. The AO added the total purchases from these parties to the assessee's income under section 69C, citing a lack of evidence such as transport bills, delivery challans, and goods inward receipts. The CIT(A) partially upheld the AO's addition by analyzing the raw material consumption and gross profit details, determining the gross profit based on the assessment year 2013-14. The CIT(A) sustained the addition towards suppressed gross profit, rejecting the assessee's arguments that the purchases were genuine and supported by valid documents. 3. Estimation of Gross Profit versus Net Profit on Alleged Bogus Purchases: The Tribunal noted that the AO made a 100% addition towards alleged bogus purchases solely based on third-party information without conducting independent enquiries. The assessee provided purchase bills and payment proofs but failed to furnish additional evidence like lorry receipts and delivery challans. The Tribunal found it difficult to accept the assessee's claim of genuine purchases given the sales-tax department's findings. The Tribunal referred to various judicial precedents, indicating that in cases of bogus purchases, only the profit element embedded in the purchases should be taxed, not the total purchases. The Tribunal cited the Hon’ble Gujarat High Court's decisions in Vijay Proteins Ltd vs CIT and CIT vs Simit P Sheth, which upheld the estimation of net profit on bogus purchases. The Tribunal concluded that the AO erred in making a 100% addition and directed the AO to estimate the net profit on the total alleged bogus purchases at 12.5% for both assessment years. Conclusion: The appeals filed by the assessee were partly allowed, and those filed by the revenue were dismissed. The Tribunal directed the AO to estimate net profit at 12.5% on the alleged bogus purchases for the assessment years 2010-11 and 2011-12, aligning with the judicial precedents that only the profit element in bogus purchases should be taxed.
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