2022 (8) TMI 942 - AT - Income Tax

Estimation of income - bogus purchases - HELD THAT - CIT (A) relying on the decision of Hon'ble Gujarat High Court in case of CIT vs. Smith P Seth 2013 (10) TMI 1028 - GUJARAT HIGH COURT wherein, it has been held that once the sale is accepted, the purchases cannot be questioned and entire purchases cannot be added but only profit element embedded therein could be added. The learned CIT (A) therefore has computed the profit margin at the rate of 6.5% of the purchases. DR did not question the profit rate of 6.5%. We also find that the learned CIT (A) has taxed the element of profit therein. There cannot be any standard or fixed benchmark of such estimate disturbing sales, we disagree with that because some profit has already been offered by assessee by showing sales. Further, 6.5% of profit in Imitation Jewellery business also cannot be said either too low or unreasonable. In view of this, the order of the learned CIT (A) is upheld. Accordingly, Ground nos. 1 to 3, are dismissed.

Summary

Issues:
Appeals filed by the Income Tax Officer regarding restricting the addition on account of bogus purchases at 6.5% of accommodation entries for A.Ys. 2009-10, 2010-11, and 2011-12.

Analysis:
For A.Y. 2009-10, the Assessing Officer raised three grounds of appeal regarding the disallowance of bogus purchase bills and the source of purchases outside the books. The CIT (A) restricted the addition to 6.5% of the accommodation entries, considering the profit embedded in the purchases. The Assessing Officer challenged this decision, arguing for the addition of 100% of the accommodation entries. The Tribunal upheld the CIT (A)'s decision, citing the Gujarat High Court's ruling that only the profit element should be added. The Tribunal found the 6.5% profit margin reasonable for the imitation jewelry business and dismissed the Assessing Officer's appeal.

In A.Y. 2010-11 and 2011-12, similar issues arose with the Assessing Officer making additions for bogus purchases, which were restricted by the CIT (A) to 6.5% of the accommodation entries. The Assessing Officer challenged these decisions as well. The Tribunal, based on the decision for A.Y. 2009-10, dismissed the appeals for A.Ys. 2010-11 and 2011-12, upholding the CIT (A)'s approach of considering only the profit embedded in the purchases rather than adding the full amount of bogus purchases.

Overall, the Tribunal maintained that the profit margin approach was valid in determining the income from the accommodation entries, and the Assessing Officer's contention for adding 100% of the bogus purchases was not accepted. The Tribunal found the CIT (A)'s decision reasonable and consistent with legal precedents, leading to the dismissal of all three appeals by the Assessing Officer.