2019 (6) TMI 582 - AT - Income Tax

Bogus purchases - CIT-A estimating 22.83% as profit embedded in total purchases of ₹ 14,86,922/- made from three parties - AO received information from Sales Tax department wherein it was mentioned that the assessee had obtained bogus purchase bills - HELD THAT - In the light of various factual evidences, supporting documents, confirmation and affidavit confirming the transactions filed by M/s. Chemi Age Enterprises, which remain uncontroverted by the revenue and on which no adverse findings were recorded by AO or by the CIT(A), the claim of the assessee deserves to be accepted as assessee had given complete evidences for movement of goods from M/s. Chemi Age Enterprises to the assessee. The assessee has also gone a step ahead in providing evidences in respect of source of source of purchases made by M/s. Chemi Age Enterprises from two other outside parties. Without disputing these facts, drawing adverse inference on the assessee merely on the ground that the said party was not produced by the assessee before the ld. AO for examination, in our considered opinion, could not be sustained in the eyes of law. We hold that the purchases made by the assessee from M/s. Chemi Age Enterprises deserves to be accepted as genuine purchases and accordingly, we direct the ld. AO to delete 22.83% of ₹ 61,30,150/- straightaway. With regard to purchases made from other two parties, we hold that this Tribunal in a series of decisions have been constantly holding that adoption of profit at 12.5% on the value of such purchase would meet the ends of justice. Respectfully following the various decisions of this Tribunal, we direct the ld. AO to adopt 12.5% of value and purchases of ₹ 32,723/- and ₹ 3,50,147/- from M/s. Sumukh Corporation and M/s. International Trade Agency respectively. Accordingly, the original grounds raised by the assessee are partly allowed.

Summary

Issues Involved:
1. Estimation of profit embedded in impugned purchases
2. Validity of reopening of assessment for A.Y. 2009-10

Analysis:

Issue 1: Estimation of profit embedded in impugned purchases
The appeal in ITA No.6951/Mum/2017 for A.Y. 2009-10 was against the order of the ld. Commissioner of Income Tax (Appeals) confirming the action of the ld. Assessing Officer in estimating 22.83% as profit embedded in purchases of ?14,86,922 from three parties. The assessee contended that the purchases were genuine, supported by documentary evidence. The Tribunal found that the ld. AO applied a 22.83% GP rate on total purchases based on information from the Sales Tax department. The Tribunal held that the purchases from one party were genuine as evidenced by documents, confirming transactions, and source of source details. The Tribunal directed the ld. AO to delete the estimated profit from that party. For purchases from the other two parties, the Tribunal directed the ld. AO to adopt a 12.5% profit rate, following Tribunal precedents. The original grounds of appeal were partly allowed, and the additional ground on the validity of reopening was dismissed based on the concession made by the assessee.

Issue 2: Validity of Reopening of Assessment
The additional ground raised by the assessee challenged the validity of reopening the assessment for A.Y. 2009-10. The Tribunal found that this ground was not raised before the ld. CIT(A), and the ld. CIT(A) did not adjudicate on it. The Tribunal noted that the assessee, despite having a strong case on merits, agreed to forego this ground if the original grounds were adjudicated favorably. The Tribunal held that the additional ground was not pressed and dismissed it. The Tribunal emphasized that the ld. AO had the power to independently examine the parties involved in transactions and could have summoned them for verification, but since the assessee provided substantial evidence, the purchases were deemed genuine.

In conclusion, the Tribunal partly allowed the appeal, directing the deletion of estimated profits from one party and adopting a 12.5% profit rate for purchases from the other two parties. The additional ground challenging the validity of reopening was dismissed, considering the overall facts and circumstances of the case.