2020 (8) TMI 302 - AT - Income Tax

Estimation of Income - bogus purchases - CIT-A restricted addition to 12.5% as against 100% addition made by the A.O. - HELD THAT - As relying on SIMIT P SHETH 2013 (10) TMI 1028 - GUJARAT HIGH COURT CIT(A) has rightly applied the profit rate at the rate of 12.5% and now, before us Revenue could not find any fault in the order of CIT(A) in estimating the profit at the rate of 12.5% of the bogus purchases - we confirm the same. This issue of Revenue s appeal is dismissed.

Summary

Issues:
- Whether the CIT(A) erred in directing the A.O. to restrict the addition of bogus purchases to 12.5% as against 100% addition made by the A.O.?

Analysis:
The case involved an appeal by the Revenue against the order of the CIT(A) regarding the addition made by the Assessing Officer in relation to bogus purchases. The Revenue contested the CIT(A)'s decision to restrict the addition to 12.5% of the bogus purchase amount instead of the 100% addition made by the Assessing Officer. The CIT(A) based this decision on the findings from investigations by the Sales Tax Authorities, which revealed that the parties involved were providing accommodation entries without actually supplying goods. The CIT(A) noted that the appellant failed to establish the genuineness of the purchases adequately and could not produce essential documentation like transportation bills, delivery challans, and weighment slips. The CIT(A) referred to a decision by the Hon'ble Gujarat High Court in a similar case to support the restriction of the addition to 12.5% of the alleged bogus purchases.

During the proceedings, the appellant provided various documentary evidence, but the failure to produce crucial documents raised doubts about the genuineness of the purchases. The CIT(A) emphasized that while the appellant showed onward sales, the purchases from undisclosed parties at lower rates were likely made to suppress profits. The CIT(A) highlighted that the mere presentation of documentary evidence like purchase bills and payments by cheques did not conclusively prove the genuineness of the purchases, especially when surrounding circumstances were suspect. The CIT(A) relied on previous court decisions to assert that only the profit element embedded in the purchases should be disallowed, not the entire amount. Therefore, the CIT(A) concluded that restricting the addition to 12.5% of the alleged bogus purchases adequately covered the profit element.

Upon review, the Tribunal upheld the CIT(A)'s decision, finding that the application of a 12.5% profit rate on the bogus purchases was appropriate. The Tribunal noted that the Revenue did not identify any errors in the CIT(A)'s order regarding the estimation of profit at 12.5%. Consequently, the Tribunal dismissed the Revenue's appeal, confirming the CIT(A)'s decision to restrict the addition to 12.5% of the bogus purchases.

In conclusion, the Tribunal's judgment affirmed the CIT(A)'s decision to limit the addition on account of bogus purchases to 12.5%, based on the findings of the investigations and the failure of the appellant to sufficiently prove the genuineness of the transactions.