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2019 (2) TMI 1342 - AT - Income TaxReopening of assessment - Bogus purchases - estimation of profit @ 12.50% - HELD THAT - AO deputed inspector to make enquiries who also reported that these parties do not exist at their given addresses. The assessee could not produce these parties before the authorities below. The assessee could not furnish the proof of delivery, transport challans and goods inward register at godown etc with respect to the alleged goods purchased by the assessee from these parties. The incriminating information was received from Maharashtra Sales Tax Department that these eleven parties from whom the assessee allegedly purchased material were accommodation entry providers who were merely issuing bogus bills without supplying/delivering any material. The genuineness of the purchases made from these eleven parties could not be proved by the assessee and the incriminating information received by Revenue from Maharashtra VAT department remained un-controverted. The authorities below have estimated embedded profits @12.5% of alleged bogus purchases made by the assessee from these accommodation entry providers who were issuing bogus bills without supplying material. Estimation of the profits have to be undertaken which requires some guess work to assess income underlying these bogus bills which are allegedly obtained to reduce profits. The higher appellate authorities in such cases will not normally interfere unless its shown that the guess work undertaken by Revenue authorities is palpably perverse which in our considered view in the instance case as assessed by both the authorities below is very reasonable and fair and do not call for our interference - Decided against assessee.
Issues Involved:
1. Confirmation of addition on account of estimation of profit from alleged bogus purchases. 2. Estimation rate of profit over and above the gross profit declared. 3. Rejection of books of accounts by invoking provisions of section 145(3) of the Income-tax Act. 4. Validity of proceedings initiated under section 147/148 of the Act. 5. Charging of interest under sections 234A, 234B, 234C, and 234D of the Act. Issue-wise Detailed Analysis: 1. Confirmation of Addition on Account of Estimation of Profit from Alleged Bogus Purchases: The assessee, a trader in ferrous and non-ferrous metals, was found to be involved in bogus purchase transactions based on information from the Sales Tax Department, Government of Maharashtra. The AO observed that the parties listed were issuing bogus sales bills without delivering goods. Consequently, the AO added an estimated profit of 12.5% on the alleged bogus purchases amounting to ?6,67,95,161/-, leading to an addition of ?83,49,395/- to the assessee's income. This estimation was based on various case laws, including Smt. Sajjandevi B Jain v. ITO and Sh. Simit P Sheth v. ITO. 2. Estimation Rate of Profit Over and Above the Gross Profit Declared: The assessee declared a gross profit rate of 4.10% on the alleged bogus purchases. However, the AO estimated the profit rate at 12.5%, considering the unverifiable nature of the purchases. The CIT(A) confirmed this estimation, noting the lack of supporting evidence such as proof of delivery, transport challans, and goods inward register at the godown. The tribunal upheld this estimation, referencing the Hon’ble Supreme Court's decision in Kachwala Gems v. JCIT, which supports reasonable guesswork in such cases. 3. Rejection of Books of Accounts by Invoking Provisions of Section 145(3) of the Income-tax Act: The CIT(A) confirmed the AO's rejection of the assessee's books of accounts under section 145(3) due to the unverifiable nature of the alleged bogus purchases. The assessee failed to produce the concerned parties or provide sufficient evidence to validate the transactions, leading to the rejection of the books of accounts. 4. Validity of Proceedings Initiated Under Section 147/148 of the Act: The assessee challenged the initiation of proceedings under sections 147/148, arguing that they were based on "reason to suspect" rather than "reason to believe" and lacked new tangible material. However, the tribunal found that the reopening of the assessment was justified based on the incriminating information received from the Sales Tax Department, indicating the assessee's involvement in bogus purchase transactions. The notices were issued within four years from the end of the assessment year, and the tribunal upheld the validity of the proceedings. 5. Charging of Interest Under Sections 234A, 234B, 234C, and 234D of the Act: The tribunal did not specifically address the issue of charging interest under sections 234A, 234B, 234C, and 234D, as the primary focus was on the addition of income based on the alleged bogus purchases and the validity of the proceedings under sections 147/148. Conclusion: The tribunal upheld the CIT(A)'s decision, confirming the addition of ?83,49,395/- based on an estimated profit rate of 12.5% on the alleged bogus purchases. The rejection of the books of accounts under section 145(3) and the validity of the proceedings under sections 147/148 were also affirmed. The appeal filed by the assessee was dismissed, and the tribunal found the CIT(A)'s order to be well-reasoned and justified.
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