2021 (10) TMI 959 - AT - Income Tax

Estimation of income - bogus purchases - estimations of profit embedded in accommodation entries of bogus purchases transactions @ 12.5% by CIT-A - HELD THAT - CIT(A) restricted the estimation of profit embedded in accommodation entries of bogus purchases transactions @ 12.5% of the purchase price accounted in the bogus invoices and the same view was upheld as the fair profit rate out of the bogus purchases by various Courts and Tribunals. Estimation of profit is very much restricted to the benefit taken by the assessee by availing accommodation entries. In our considered view, the Ld. CIT(A) has adjudicated the issue and reached the conclusion to estimate the income @ 12.5% is proper and just. Therefore, we are inclined not to interfere with the findings of the Ld. CIT(A) and accordingly, grounds raised by the Department are hereby dismissed.

Summary

Issues:
Assessment of alleged bogus purchases as income under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 for the assessment year 2009-10.

Analysis:

Issue 1: Alleged Bogus Purchases
The case involved the assessment of alleged bogus purchases made by the assessee firm, which were considered as income by the Assessing Officer. The purchases from Raj Traders, Bright Corporation, and Nisha Enterprises were deemed as bogus, totaling ?49,75,563. The Assessing Officer disallowed 100% of these purchases as income of the assessee.

Issue 2: Appeal before CIT(A)
The assessee appealed before the Commissioner of Income Tax (Appeals) [CIT(A)], challenging the disallowance of the entire amount of alleged bogus purchases. The CIT(A), after considering detailed submissions, partially ruled in favor of the assessee by restricting the disallowance to 12.5% of the bogus purchases. The CIT(A) based this decision on the estimation of profit embedded in accommodation entries of bogus purchases.

Issue 3: Tribunal's Decision
The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s decision to estimate the income at 12.5% of the purchase price accounted in the bogus invoices. The ITAT noted that the estimation of profit should be restricted to the benefit obtained by the assessee through accommodation entries. The tribunal found the CIT(A)'s conclusion appropriate and declined to interfere with it, dismissing the grounds raised by the Revenue.

In conclusion, the ITAT upheld the CIT(A)'s decision to restrict the disallowance of alleged bogus purchases to 12.5% of the purchase price, emphasizing the proper estimation of income based on the benefit derived by the assessee. The appeal filed by the Revenue was dismissed, affirming the CIT(A)'s ruling.