2018 (10) TMI 798 - AT - Income Tax

Addition made towards bogus purchases - addition based on the information of the Sales Tax Department in their official website and the information from the Investigation Wing - CIT-A estimated the profit element @ 25% - Held that - In similar type of cases the Coordinate Benches have taken a view that the percentage addition should be made ranging from 2 to 12.5% depending upon the facts and circumstances of the case in order to bring to tax the savings which the assessee has made by the reason of purchase of goods from grey market when the sales/consumption is undisputed. In the present case the sales were not disputed and the method of accounting followed by the assessee is project completion, therefore, we are inclined to estimate the profit on the above purchases at 3%. Accordingly appeal of the assessee is partly allowed without deciding the issue technically and legally. Thus we are inclined to follow the order of the Tribunal in assessee s group case and direct the Assessing Officer to restrict the disallowance of purchases @3%. - decided partly in favour of assessee.

Summary

Issues:
Appeals filed by assessee and Revenue for Assessment Years 2008-09, 2010-11, 2011-12, and 2012-13 regarding addition made towards bogus purchases by Assessing Officer.

Analysis:
1. The Assessing Officer disallowed purchases based on Sales Tax Department information of accommodation entries by several dealers. Assessee provided evidence like vouchers, bank statements, and transportation details to prove genuineness, but AO disallowed entire purchases. CIT(A) estimated profit at 25%, leading to appeals by both parties.

2. Assessee contended purchases were genuine, supported by documentary evidence. AO's disallowance was based solely on Sales Tax Department data without concrete proof. CIT(A) estimated profit at 25%. Assessee referenced a similar case where profit was estimated at 3%, seeking a similar approach.

3. The Department supported AO's decision, citing lack of evidence for genuineness. However, the Tribunal noted the absence of substantial evidence linking the purchases to bogus dealers, emphasizing the need for concrete proof. The Tribunal found the AO's treatment of purchases as non-genuine unjustified, especially when sales from these purchases were accepted.

4. For some years, due to the tax effect being less than a specified amount, the appeals by Revenue were dismissed. In other years, the Tribunal found the AO's disallowance lacked concrete evidence, and the CIT(A)'s estimation of profit at 25% was deemed excessive. Referring to a similar case, the Tribunal directed the AO to restrict the disallowance of purchases to 3% based on the evidence presented.

5. The Tribunal's decision was influenced by the lack of concrete evidence linking purchases to bogus dealers, emphasizing the need for a factual basis for disallowances. The Tribunal's approach aimed to strike a balance between addressing potential irregularities and ensuring fairness in assessing profits from purchases.