2018 (8) TMI 1626 - AT - Income Tax

Estimation of gross profit on alleged bogus purchases - CIT-A estimated profit at 12.50% relying on the decision of Simit P Seth 2013 (10) TMI 1028 - GUJARAT HIGH COURT - Held that - Facts in the case of Simit P Seth were entirely different, therefore, reliance placed by CIT(A) on the decision of Simit P Seth for making addition by computing profit at 12.5% is not justified. As genuine purchases are concerned, there is no justification at all for making any addition by estimating extra profit there on to the extent of purchase of ₹ 48.39 Crores. As per the record, the assessee has made purchase of ₹ 48.39 Crores from other than hawala dealers, no further addition is warranted on such purchases. However, purchases to the extent of ₹ 55.09 Crores were made from suppliers who did not pay sales tax. Even though the profit declared by the assessee on such purchases was much more than the profit shown on the genuine purchases, but keeping in view the totality of facts and circumstances of the case and the fact that quantitative statement of purchases and sales so filed by the assessee was not disputed by any of the lower authorities, we deem it fit to restrict the addition to the extent of 2% of alleged bogus purchases amounting to ₹ 55.09 Crores. Thus, we restrict the addition to the extent of ₹ 11.01 lakhs. - Decided partly in favour of assessee.

Summary

Issues Involved:
1. Enhancement of disallowance by CIT(A) on alleged bogus purchases.
2. Validity of assessing officer's addition based on alleged bogus purchases.
3. Justification for the application of profit estimation on purchases.

Issue-wise Detailed Analysis:

1. Enhancement of Disallowance by CIT(A) on Alleged Bogus Purchases:
The assessee contended that the CIT(A) erred in enhancing the disallowance to ?11,04,76,728/- by estimating gross profit at 12.5% on alleged bogus purchases, as opposed to the addition of ?1,89,39,167/- made by the AO. The assessee argued that the alleged bogus purchases and corresponding sales were duly recorded in the books of account and reflected in the audited financial statements. The CIT(A) relied on the Gujarat High Court decision in Simit P Seth to enhance the income.

2. Validity of Assessing Officer's Addition Based on Alleged Bogus Purchases:
The department received information about bogus suppliers and conducted a survey under section 133A, which did not find adverse documents at the assessee's premises. The AO sent notices to defaulting suppliers, which were not served. Despite the assessee providing all purchase details, the AO was unsatisfied and added 1.83% of the entire purchases, amounting to ?1,89,39,167/-. The assessee agreed to an addition of 0.10%-0.15% for peace of mind, but the AO made a higher addition. The CIT(A) further enhanced the income to 12.50% of the entire purchases.

3. Justification for the Application of Profit Estimation on Purchases:
The assessee argued that the facts in Simit P Seth were different, and the reliance on this case for estimating profit at 12.5% was unjustified. The assessee demonstrated that the GP on alleged bogus purchases was higher than on genuine purchases. The AO did not reject the books of accounts, and the quantitative statement of purchases and sales was undisputed. The tribunal found that the assessee declared higher GP on alleged bogus purchases and restricted the addition to 2% of the alleged bogus purchases amounting to ?55.09 Crores, resulting in an addition of ?11.01 lakhs.

Conclusion:
The tribunal concluded that the CIT(A)'s reliance on Simit P Seth was not justified given the different facts. The tribunal restricted the addition to 2% of the alleged bogus purchases, amounting to ?11.01 lakhs, considering the higher GP declared by the assessee on these purchases. The appeal of the assessee was allowed in part, and the order was pronounced on 31/07/2018.