2021 (10) TMI 3 - AT - Income Tax

Estimation of income - bogus purchases - CIT-A estimated at 12.5% of the aggregate value of the impugned purchases - HELD THAT - CIT(A) had rightly concluded that as the sales could not have been carried out de hors the corresponding purchases thus, it could safely be concluded that the assessee had purchased the goods in question though not from the aforementioned hawala parties, but at a discounted value from the open/grey market - CIT(A) in our considered view had rightly restricted the addition to the extent of the profit embedded in procuring of the impugned goods at a discounted value from the dealers operating in the open/grey market. We concur with the view taken by the CIT(A) that the addition in the hands of the assessee was liable to be restricted only to the extent of the profit element embedded in the impugned purchases in question. Also, we subscribe to the quantification of the said profit element by the CIT(A) at 12.5% of the aggregate value of the impugned purchases. - Decided against revenue.

Summary

Issues:
1. Assessment of addition on account of bogus purchases.
2. Consideration of latest Apex Court decision in similar cases.

Analysis:

Issue 1: Assessment of addition on account of bogus purchases
The case involved an appeal by the revenue against the order passed by the CIT(A) related to the assessment year 2010-11. The assessee, engaged in the business of supplying air-conditioners and water coolers, was found to have obtained bogus purchase bills from parties blacklisted by the Sales Tax Department. The Assessing Officer (A.O) disallowed the entire amount of the impugned purchases, totaling &8377; 65,65,939, as accommodation bills. The A.O's decision was based on the absence of supporting documentary evidence like goods receipt notes and inspection details. The A.O concluded that no genuine purchases were made from the mentioned parties. The CIT(A), however, observed that the assessee had accounted for sales corresponding to the purchases, indicating procurement from the open/grey market at a discounted value. Consequently, the CIT(A) restricted the addition to 12.5% of the purchase value, considering only the profit element embedded in procuring the goods at a discounted rate.

Issue 2: Consideration of latest Apex Court decision
The revenue contended that the CIT(A) erred in not considering a recent Supreme Court decision confirming 100% addition on account of bogus purchases. Despite the absence of the assessee during the appeal hearing, the Appellate Tribunal reviewed the case. The Tribunal noted the failure of the assessee to substantiate the authenticity of the purchases with conclusive evidence. However, the Tribunal acknowledged that the assessee provided documentary evidence such as purchase bills, ledger accounts, and bank statements. The Tribunal agreed with the CIT(A)'s reasoning that the sales could not have occurred without corresponding purchases. Therefore, the Tribunal upheld the CIT(A)'s decision to restrict the addition to the profit element embedded in the discounted purchases from the open/grey market, quantifying it at 12.5% of the purchase value.

In conclusion, the Appellate Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s decision to limit the addition on account of bogus purchases to 12.5% of the purchase value.