2020 (8) TMI 62 - AT - Income Tax

Bogus purchases - on the information from Sales Tax Department the AO had added the entire purchases in assessee s income - assessee has paid VAT on the goods so purchased - HELD THAT - Looking to the gross profit ratio declared by the assessee it is clear that the assessee has shown very reasonable gross profit ratio in all the years under consideration. There are various judicial pronouncements to the fact that in case gross profit shown by the assessee is 15% or more no addition is warranted. In the instant case the assessee has declared gross profit of 16.47% in A.Y. 2009-10, accordingly I direct the AO not to make any addition. However, in assessment years 2010-11 and 2011-12 the gross profit shown by the assessee is 12.75% and 14.88%, which are lower than 15%. Accordingly direct the AO to make addition to the extent of shortfall in gross profit in these two years as compared to the gross profit of 15% i.e. 2.25% in A.Y. 2010-1 0.12@ in A.Y. 2011-12. - Decided partly in favour of assessee.

Summary

Issues:
Appeals filed by the assessee against CIT(A)'s order for assessment years 2009-10 to 2011-12 regarding 100% deduction on account of bogus purchase.

Analysis:
1. The assessee contended that purchases were genuine, supported by documentary evidence, and argued against addition based solely on Sales Tax Department's information. Citing legal precedents, it was emphasized that sales cannot occur without purchases, and the AO's reliance on one aspect while ignoring others was unjust. The AO's failure to provide alleged statements of suppliers to the assessee was criticized, highlighting the need for a fair assessment process.

2. The learned D.R. supported the AO's detailed enquiry into purchase genuineness, alleging purchases without actual goods delivery to reduce profits. Upholding the lower authorities' orders was advocated.

3. After considering arguments and judicial precedents, it was noted that the AO added entire purchases based on Sales Tax Department's information. Gross profit ratios for the years were examined, with a gross profit of 15% or more generally deemed reasonable. Accordingly, no addition was directed for A.Y. 2009-10 due to a 16.47% profit ratio, but shortfalls in A.Y. 2010-11 and 2011-12 (12.75% and 14.88% respectively) were addressed by directing additions of 2.25% and 0.12% respectively.

4. The judgment allowed the appeal for A.Y. 2009-10 and partially allowed the appeals for A.Y. 2010-11 and A.Y. 2011-12, based on the indicated profit ratio adjustments. The order was pronounced on 13th July 2020, with a marginal delay attributed to Covid-19 restrictions.