2019 (1) TMI 1455 - AT - Income Tax

Bogus purchases - assessee failed to establish the genuineness of the purchase and accordingly, he made addition of unproved purchase at 12.5% - Held that - As relying on Simit P. Sheth 2013 (10) TMI 1028 - GUJARAT HIGH COURT we find that the CIT(A) has rightly applied the profit rate at the rate of 6.5% of the bogus purchases and we confirm the same. This issue of assessee s appeal is dismissed.

Summary

Issues:
- Disallowance of alleged bogus purchases at a specific profit rate.

Analysis:
1. The appeal arises from the CIT(A)'s order restricting the profit rate on alleged bogus purchases. The assessee contested the addition of a specific amount to income due to alleged bogus purchases, arguing that the addition lacked basis and justification, leading to double taxation. The CIT(A) restricted the profit rate to 6.5%, reducing it from the initial 12.5%. The assessee raised concerns about the VAT component being considered as profit and provided various documents for consideration.

2. The assessee, engaged in the metal business, faced allegations of purchasing from hawala parties providing bogus bills. The AO, based on information from the Sales Tax Department, added unproved purchases to the income. Despite the assessee submitting documentary evidence like payment receipts and account payee cheques, the AO found the purchases unverified. Consequently, the AO made an addition to the income, which the CIT(A) later reduced to 6.5% of the bogus purchases.

3. The CIT(A) relied on a decision by the Gujarat High Court to determine the profit rate on the bogus purchases. Considering the lack of evidence for the genuineness of purchases and the nature of the business, the CIT(A) reduced the profit rate to 6.5%, comprising 4% VAT and 2.5% profit margin. The Tribunal upheld the CIT(A)'s decision, confirming the 6.5% profit rate on the alleged bogus purchases, leading to the dismissal of the assessee's appeal.

4. Ultimately, the Tribunal affirmed the CIT(A)'s decision to restrict the profit rate at 6.5% on the disputed bogus purchases, dismissing the assessee's appeal. The judgment highlights the importance of substantiating transactions and the application of appropriate profit rates in cases of alleged bogus purchases, emphasizing the need for thorough documentation and compliance with tax regulations.