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2018 (4) TMI 255 - AT - Income TaxAddition u/s 69C - unapproved purchases - Held that - Whole addition on account of non-proving the bogus purchase u/s 69C of the Act doesn t seem justifiable because sale is not disputed and books of account has not been rejected. In the instant case, the AO conducted the proper verification of the bogus purchase. Notices were given to the parties and the assessee was given an opportunity of being heard before passing the order but the transaction has not been properly proved. Since no new material has come before us, therefore, we are of the view that the bogus purchase to the tune of ₹ 1.33. crores is not doubtful. It is not required to be seen whether the whole addition is required on the part of the assessee or not u/s 69C. See COMMISSIONER OF INCOME-TAX-I Versus SIMIT P SHETH 2013 (10) TMI 1028 - GUJARAT HIGH COURT End of justice would be met if, the 12.5% of the gross profit ratio of the bogus purchase is liable to be taken into consideration. See COMMISSIONER OF INCOME-TAX-I Versus SIMIT P SHETH 2013 (10) TMI 1028 - GUJARAT HIGH COURT - We set aside the finding of the CIT(A) on this issue and restricted the addition of bogus purchase to the extent of 12.5% - Decided partly in favour of assessee.
Issues Involved:
1. Addition u/s 69C of the IT Act on unapproved purchases from M/s. Shreeji Enterprises. 2. Disallowance of commission and restriction of addition to 30%. 3. Relevance of gross profit ratio in determining the addition for bogus purchases. Issue 1: Addition u/s 69C of the IT Act on unapproved purchases from M/s. Shreeji Enterprises: The Revenue contested the CIT(A)'s decision not to sustain the addition of ?1,33,05,834 under section 69C of the IT Act for unapproved purchases from M/s. Shreeji Enterprises. The Revenue argued that the denial of transactions by the proprietor of M/s. Shreeji Enterprises and the fictitious addresses provided by the assessee warranted the addition. However, the ITAT found that the Assessing Officer's investigation concluded the purchases were unexplained under section 69C. The ITAT considered the gross profit ratio of preceding years and decided to restrict the addition to 12.5% of the bogus purchase amount, following precedents like M/s. Vijay Proteins Ltd. 58 ITD 428 and Simit P. Sheth 356 ITR 451. Issue 2: Disallowance of commission and restriction of addition to 30%: The Revenue also challenged the CIT(A)'s decision to limit the addition to 30% of the total unapproved purchase amount, arguing for a full addition. The ITAT, after considering arguments from both sides, found that the Assessing Officer's investigation supported the unexplained nature of the purchases. The ITAT disagreed with the CIT(A)'s approach and decided to restrict the addition to 12.5% of the bogus purchase amount, aligning with the gross profit ratio analysis and legal precedents. Issue 3: Relevance of gross profit ratio in determining the addition for bogus purchases: The ITAT extensively deliberated on the relevance of the gross profit ratio from preceding years in determining the addition for bogus purchases. The ITAT emphasized that the Assessing Officer's investigation, lack of new evidence, and precedents like M/s. Vijay Proteins Ltd. 58 ITD 428 and Simit P. Sheth 356 ITR 451 supported considering the profit embedded in the bogus purchases. Ultimately, the ITAT decided to restrict the addition to 12.5% of the bogus purchase amount, deviating from the CIT(A)'s 30% limitation. In conclusion, the ITAT partially allowed the assessee's appeal and dismissed the Revenue's appeal, setting aside the CIT(A)'s findings and restricting the addition for unapproved purchases to 12.5% of the bogus purchase amount, based on the gross profit ratio analysis and legal precedents cited during the proceedings.
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