2021 (4) TMI 434 - AT - Income Tax

Estimation of income - Bogus purchases - CIT-A restricting the addition to 12.5% - HELD THAT - No infirmity in the order passed by the Ld.CIT(A) in restricting the addition to 12.5% as against the entire bogus purchases disallowed by the Assessing Officer. Grounds raised by the revenue are dismissed.

Summary

Issues Involved:
1. Legitimacy of bogus purchases disallowed by the Assessing Officer.
2. Validity of the percentage of addition (12.5%) applied by the Ld. CIT(A).

Detailed Analysis:

1. Legitimacy of Bogus Purchases Disallowed by the Assessing Officer:

The assessee, engaged in trading ferrous and non-ferrous metals, filed a return of income for the A.Y. 2012-13. The Assessing Officer (AO) reopened the assessment under Section 147 of the Act based on information from the Sales Tax Department, Mumbai, indicating that the assessee had availed accommodation entries from various dealers without actual transportation of goods. The AO required the assessee to prove the genuineness of purchases from M/s. Pioneer Enterprises. Although the assessee furnished purchase bills and bank payment records, the parties were not produced before the AO. Consequently, the AO treated the purchases as non-genuine, suggesting that the assessee might have made purchases in the gray market, and disallowed ?3,25,091/- of alleged bogus purchases.

2. Validity of the Percentage of Addition (12.5%) Applied by the Ld. CIT(A):

Upon appeal, the Ld. CIT(A) considered the evidence and submissions, restricting the addition to 12.5% of the alleged bogus purchases. The Ld. CIT(A) referenced judicial pronouncements, including the case of M/s. Kanchwala Gems vs. JCIT, where payment by account payee cheque was deemed insufficient to establish the genuineness of purchases. The Ld. CIT(A) noted that the AO's findings were based on statements from the Sales Tax Authorities and independent inquiries. The assessee failed to produce the parties or corroborative evidence such as transportation bills. The Ld. CIT(A) concluded that while the purchases could not be entirely bogus, the transactions were unverifiable, suggesting possible over-invoicing or gray market purchases.

The Ld. CIT(A) cited multiple judicial precedents, including CIT v. Nikunj Eximp Enterprises (P.) Ltd., which held that purchases could not be disallowed merely because suppliers were not produced before the AO. The Ld. CIT(A) emphasized that only the profit element embedded in such purchases should be taxed, referencing cases like CIT-1 Vs Simit P. Sheth and CIT Vs. Bholanath Poly Fab (P) Ltd., where courts held that only the profit element in such purchases, not the entire amount, should be added to the income.

The Ld. CIT(A) justified the 12.5% estimation based on similar cases and judicial pronouncements, concluding that this percentage would meet the ends of justice. The AO was directed to estimate the profit at 12.5% of the alleged bogus purchases, amounting to ?40,636/-, with the balance amount of ?2,84,455/- being allowed as relief to the assessee.

Conclusion:

The appellate tribunal, after careful perusal of the Ld. CIT(A)'s order and the reasons provided, found no infirmity in restricting the addition to 12.5% of the alleged bogus purchases. The grounds raised by the revenue were dismissed, and the appeal of the revenue was dismissed. The order was pronounced on 03.02.2021.