2018 (6) TMI 1051 - AT - Income Tax

Addition made on account of bogus purchases - GP determination - books of accounts have not been rejected - Held that - assessee had shown gross profit of 17.74% on the goods so purchased. The gross profit shown in respect of such alleged bogus purchases vis- -vis other purchases were same. Thus when the assessee himself has declared GP of 17.74% and the GP declined in respect of alleged bogus purchases was not lower than the normal GP, there is no justification for making further addition of 12.5%. However, keeping in view the totality of facts and circumstances of the case vis- -vis observation of the AO we direct the AO to restrict the addition to the extent of 2% of such alleged bogus purchases.

Summary

Issues:
Cross appeals by Revenue and assessee against CIT(A) order for A.Y.2009-10 on addition made for bogus purchases and reopening of assessment.

Analysis:
1. Both Revenue and assessee contested the addition made on account of bogus purchases and the reopening of assessment. The Sales Tax Authorities' investigation revealed certain parties issuing bills without actual transactions, leading to suspicion. The AO estimated a 17.74% gross profit on alleged purchases, adding it to the assessee's income.

2. The CIT(A) upheld the reopening and estimated profit at 12.5%, citing the Gujarat High Court decision in Simit P Sheth case. The assessee argued that the GP for regular and alleged purchases was consistent at 17.74%, questioning the justification for a 12.5% addition. The appellant differentiated their case from Simit Sheth based on various factors like the year, location, lack of supplier statements, and non-rejection of books of accounts by the AO.

3. The appellant referred to the Suman Gupta case where a 2% disallowance was upheld under similar circumstances. They also cited several precedents emphasizing the need for thorough investigation before adding based solely on Sales Tax department information. The Revenue, however, supported the AO's 17.74% profit estimation.

4. The Tribunal considered all contentions and evidence. The appellant, an electric contractor, provided detailed purchase and sales records, payment proofs, and operational details. Despite the appellant's arguments, the CIT(A) maintained a 12.5% addition, relying on Simit Sheth. However, the Tribunal found the comparison invalid due to different business locations and years. As the appellant's declared GP matched for all purchases, the Tribunal directed a 2% addition instead of 12.5%, considering the overall circumstances and AO's observations.

5. Ultimately, the Tribunal dismissed the Revenue's appeal and partially allowed the assessee's appeal, reducing the addition to 2% of the alleged bogus purchases.