2018 (12) TMI 751 - AT - Income Tax

Bogus purchases - estimation of profit - Held that - Profit at the rate of 5% on such transaction has been estimated and added to the total income of the assessee. Similarly, in the case of Ganesh Industries 2018 (10) TMI 739 - ITAT AHMEDABAD we have considered similar issue, wherein we estimated GP at 5% to 6% on these transactions, because the assessee had already disclosed GP on the alleged bogus purchases at 14.27% in that case. In the present case also, the assessee has already offered profit at 5%. It has shown the income on these purchases at ₹ 15,29,625/-. If we further estimate profit at 5% that will meet ends of justice. It takes care of avoidance of payment of tax etc. and earning of extra profit. Therefore, we partly allow this ground of appeal and direct the AO to estimate profit at 5% (five percent) over and above profit disclosed by the assessee on these alleged bogus purchase. In other words, addition of ₹ 15,29,625/- more would be added to the total income of the assessee. In view of the above discussion, this ground of appeal is partly allowed.

Summary

Issues Involved:
1. Disallowance of ?3,06,32,999/- as bogus purchases.
2. Disallowance of ?21,566/- under section 14A r.w.r. 8D.
3. Disallowance of ?2,19,474/- under section 36(1)(va) for late payment of employees' provident fund contributions.

Issue-wise Detailed Analysis:

1. Disallowance of ?3,06,32,999/- as Bogus Purchases:
The main grievance of the assessee revolves around the disallowance of ?3,06,32,999/- as bogus purchases. The assessee, engaged in manufacturing ferrous and non-ferrous metals, filed its return of income declaring a total income of ?1,19,12,250/-. The case was selected for scrutiny, and the AO found that the Maharashtra Sales Tax Department had identified three parties (Parasnath Enterprises, Sendoz Steels, and Navkar Impex) involved in issuing bogus tax invoices without actual movement of goods. The AO confronted the assessee, who provided evidence of trading goods purchased and sold, earning a profit of ?15,29,625/-. Despite this, the AO disallowed the purchases based on statements from the Maharashtra Sales Tax Department.

The assessee argued that the AO relied on statements and affidavits not provided to them, violating natural justice principles. They contended that the purchases were genuine, supported by payments made through cheques, and that the sales were not disputed. The assessee cited legal precedents to support their claim that disallowing the entire purchase amount was unjustified.

The Tribunal noted that the AO's reliance on statements recorded by the Maharashtra Sales Tax Department was questionable without providing the assessee an opportunity to cross-examine. However, the Tribunal found the evidence provided by the assessee insufficient to prove the genuineness of the purchases. The Tribunal concluded that while the purchases might be inflated, the corresponding sales were not disputed. Thus, instead of disallowing the entire purchase amount, the Tribunal directed the AO to estimate an additional profit of 5% on the alleged bogus purchases, adding ?15,29,625/- to the total income of the assessee.

2. Disallowance of ?21,566/- under Section 14A r.w.r. 8D:
The assessee did not press this ground of appeal, considering the smallness of the amount involved. Consequently, the Tribunal rejected this ground of appeal.

3. Disallowance of ?2,19,474/- under Section 36(1)(va) for Late Payment of Employees' Provident Fund Contributions:
The Tribunal noted that this issue was covered against the assessee by the decision of the Hon’ble Gujarat High Court in the case of CIT Vs. Gujarat State Road Transport Corporation Ltd. The High Court held that if employees' PF contributions are not deposited within the time limit provided in the respective Acts, the deduction will not be admissible. Following this precedent, the Tribunal rejected this ground of appeal.

Conclusion:
The appeal of the assessee was partly allowed. The Tribunal directed the AO to estimate an additional profit of 5% on the alleged bogus purchases, adding ?15,29,625/- to the total income. The other grounds of appeal were rejected. The order was pronounced in the Court on 11th December 2018 at Ahmedabad.