2020 (4) TMI 544 - AT - Income Tax

Bogus purchase - CIT(A) restricting the disallowance @ 12.5% - HELD THAT - Both the sides have failed to prove the case in their favour with necessary evidences. Although, assessee has filed certain basic evidences, but failed to file further evidences to conclusively prove purchases to the satisfactions of the AO. AO had also failed to take the investigation to a logical conclusion by carrying out necessary enquires, but he solely relied upon information received from investigation wing, which was further supported by information received from Maharashtra Sales Tax Department. In the case of CIT vs Simith P. Sheth 2013 (10) TMI 1028 - GUJARAT HIGH COURT had considered a similar issue and held that at the time of estimation of profit from alleged bogus purchases no uniform yardsticks could be adopted, but it depends upon facts of each case. We are of the considered view that the CIT(A) has taken a fair view and estimated 12.50% gross profit on alleged bogus purchases to settle dispute between the parties and hence, we are inclined to uphold order of the ld. CIT(A) and dismiss appeal filed by the Revenue. - Decided against revenue.

Summary

Issues:
1. Disallowance of alleged bogus purchases.
2. Assessment of income based on alleged bogus purchases.
3. Appeal against the order of the Ld. Commissioner of Income Tax (Appeals).

Issue 1: Disallowance of alleged bogus purchases
The case involved the disallowance of alleged bogus purchases by the revenue. The Ld. Commissioner of Income Tax (Appeals) restricted the disallowance to 12.5% of the total purchases from the parties in question. The Ld. CIT(A) considered the submissions of the assessee, who provided documentary evidence to prove the genuineness of the purchases. The Ld. CIT(A) found that the purchases were supported by necessary documents, such as bills and bank statements, despite the absence of suppliers at the given address and non-production of certain delivery-related documents. The Ld. CIT(A) concluded that the entire disallowance made by the Assessing Officer was not sustainable in law and restricted it to 12.5% of the alleged bogus purchases, providing partial relief to the appellant.

Issue 2: Assessment of income based on alleged bogus purchases
The Assessing Officer had made a 100% addition towards the alleged bogus purchases, based on the belief that the assessee was a beneficiary of accommodation entries from hawala dealers. The Ld. AO relied on information from the Sales Tax Department and investigation findings to conclude that the purchases were bogus. However, the appellant argued that the purchases were genuine and supported by necessary evidence, including proper banking channel payments. The Appellate Tribunal noted that both sides failed to conclusively prove their cases with necessary evidence. The Tribunal highlighted that in cases involving purchases from suspicious dealers, only the profit element should be taxed, not the total purchase amount. The Ld. CIT(A) had scaled down the addition to 12.5% gross profit on the alleged bogus purchases, a decision upheld by the Tribunal based on precedents and lack of supporting evidence for alternative profit rates.

Issue 3: Appeal against the order of the Ld. Commissioner of Income Tax (Appeals)
The revenue's appeal against the Ld. CIT(A)'s order was dismissed by the Appellate Tribunal. The Tribunal upheld the Ld. CIT(A)'s decision to restrict the disallowance to 12.5% of the alleged bogus purchases, citing precedents and lack of conclusive evidence from both parties. The Tribunal concluded that the Ld. CIT(A) had fairly adopted the 12.5% profit estimation on the alleged bogus purchases, in line with previous court and tribunal decisions. Therefore, the appeal filed by the revenue was dismissed.

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