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2020 (3) TMI 474 - HC - Income TaxBogus purchases - CIT-A directed to estimate profit of 17.5% on the total alleged bogus purchases and thereafter, to delete the balance amount of addition - Tribunal concurred with the view taken by the CIT(A) that the Assessing Officer had erred in disallowing the entire total purchases and adding the same to the total income of the assessee - HELD THAT - View taken by the CIT(A) that 17.5% of the purchases be added to the total income of the assessee as the profit element was a reasonable one. It was also noted that the said percentage was accepted by the assessee with a view to close the litigation. Nothing was brought on record by the Revenue to contradict the findings recorded by the CIT(A). Tribunal had also referred to the decision of this court in CIT Vs. Nikunj Eximp Enterprises Pvt. Ltd. 3 2013 (1) TMI 88 - BOMBAY HIGH COURT . Infact, this court has also held following the decision of Nikunj Eximp Enterprises Pvt. Ltd. that the revenue is required to furnish the information received from the Sales Tax Department or from the Investigation Wing of the Department to the assessee allowing the assessee to test the veracity of such information otherwise such information could not be relied upon. As decided in VAMAN INTERNATIONAL PVT. LTD. 2020 (2) TMI 464 - BOMBAY HIGH COURT merely because the suppliers had not appeared before the Assessing Officer, no conclusion could be arrived at that the purchases were not made by the assessee - No error or infirmity in the finding returned by the Tribunal. - Decided against revenue
Issues Involved:
1. Legitimacy of the Tribunal's confirmation of the CIT(A)'s restriction of disallowance to 17.5% of the total alleged bogus purchases. 2. Tribunal's reliance on the decision of CIT Vs. Nikunj Eximp Enterprises Pvt. Ltd. despite differing facts. 3. Ignoring the Delhi High Court and Gujarat High Court decisions on purchases from unproven parties and the applicability of Section 40A(3) of the Income Tax Act, 1961. Detailed Analysis: Issue 1: Legitimacy of the Tribunal's Confirmation of the CIT(A)'s Restriction of Disallowance to 17.5% The Revenue appealed against the Tribunal's order, which confirmed the CIT(A)'s decision to restrict the disallowance to 17.5% of the total alleged bogus purchases amounting to ?1,14,92,970. The CIT(A) accepted the bogus nature of the transactions but held that the entire purchases could not be added as bogus. Instead, only the profit element embedded in the transactions should be taxed. This decision was based on the Gujarat High Court's ruling in CIT Vs. Simit P. Sheth, which suggested that profit estimation ranging from 12.5% to 25% would be appropriate depending on the nature of the business. The Tribunal agreed with the CIT(A) and found no reason to intervene, noting that the 17.5% estimation was reasonable and accepted by the assessee to avoid further litigation. Issue 2: Tribunal's Reliance on CIT Vs. Nikunj Eximp Enterprises Pvt. Ltd. The Revenue contended that the Tribunal erred in relying on CIT Vs. Nikunj Eximp Enterprises Pvt. Ltd., arguing that the facts of the present case were distinguishable. In Nikunj Eximp, the material was purchased from a defense organization, which could not be treated as bogus, unlike the present case where purchases were made from private parties identified as hawala operators by the Sales Tax Department, Government of Maharashtra. However, the Tribunal found that the assessee had provided sufficient documentary evidence, such as purchase bills, sale invoices, stock ledger entries, and bank statements, to establish the genuineness of the purchases. The Tribunal held that the Assessing Officer failed to provide material evidence to prove the purchases were bogus and merely relied on information from the Sales Tax Department. Issue 3: Ignoring Delhi and Gujarat High Court Decisions The Revenue argued that the Tribunal ignored the Delhi High Court's decision in La Medica and the Gujarat High Court's decision in Hynoup Foods & Oil Industries Pvt. Ltd., which held that purchases from unproven parties are bogus and that Section 40A(3) of the Income Tax Act, 1961, applies to bogus purchases. The Tribunal, however, concurred with the CIT(A)'s view that the assessee had made cash purchases from other parties not recorded in the books and took only accommodation bills from the eight parties to explain the purchases. The Tribunal upheld that only the profit element embedded in such transactions should be taxed, aligning with the Gujarat High Court's decision in Bholanath Polyfab Limited, which held that not the entire amount of purchases but the profit margin embedded therein should be subjected to tax. Conclusion: The High Court found no error or infirmity in the Tribunal's findings. The Tribunal's decision to restrict the disallowance to 17.5% of the total alleged bogus purchases was deemed reasonable and supported by substantial evidence. The High Court dismissed the Revenue's appeal, stating that no substantial question of law arose from the Tribunal's findings. The appeal was dismissed with no order as to cost.
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