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2023 (3) TMI 670 - AT - Income TaxEstimation of income - Bogus purchases - HELD THAT - Admittedly, the Assessing Officer in the instant case has accepted the sales and books of account have not been rejected. Further, the payments for the alleged bogus purchases have been made through proper banking channels and the Revenue is not in appeal against the order of the CIT (A) allowing 75% of such purchases as genuine and only 25% of the bogus purchase has been sustained by the CIT (A). In the case law compilation, the learned Counsel for the assessee has filed certain decisions, wherein in such type of cases, the additions have been sustained ranging from 3% to 5% of such purchases. Considering the totality of the facts of the case and considering the fact that the profit shown by the assessee is more than the case law cited by the learned Counsel for the assessee, we are of the considered opinion that the disallowance of 15% of such bogus purchases in the instant case will meet the ends of justice. We, therefore, modify the order of the CIT (A) and direct the Assessing Officer to restrict the addition to 15% of such bogus purchase as against 25% restricted by the CIT (A) - Decided partly in favour of assessee.
Issues Involved:
1. Validity of reassessment proceedings. 2. Estimation of profit on account of bogus purchases. Summary: 1. Validity of reassessment proceedings: The learned Counsel for the assessee did not press the grounds relating to the validity of reopening of the assessment. Consequently, these grounds were dismissed as not pressed. 2. Estimation of profit on account of bogus purchases: Facts and Background: The assessee, an individual engaged in trading jewellery and precious stones, filed returns for A.Y. 2008-09, 2009-10, and 2010-11. The Assessing Officer (AO) received information from the Investigation Wing, Hyderabad, indicating that the assessee had shown purchases from entities that were merely providing accommodation entries for bogus purchases. Consequently, the AO initiated proceedings under Section 147 and issued notices under Sections 143(2) and 142(1). Assessment and CIT (A) Findings: The AO added Rs. 25,63,834/- as bogus purchases for A.Y. 2008-09, citing that the entities involved were paper entities. The CIT (A) restricted the addition to 25% of the bogus purchases, i.e., Rs. 6,40,958/-, relying on various judicial decisions, including the Hon'ble Gujarat High Court in the case of NK Industries Ltd vs. DCIT. Tribunal's Decision: The Tribunal noted that the AO had accepted the sales and had not rejected the books of account. Payments for the alleged bogus purchases were made through proper banking channels. The Tribunal found merit in the argument that the disallowance of 25% was on the higher side and considered that the norm in such cases ranged from 3% to 5%. Final Order: The Tribunal modified the CIT (A)'s order, directing the AO to restrict the addition to 15% of the bogus purchases, considering it a reasonable estimation of profit. This decision applied to all three assessment years (2008-09, 2009-10, and 2010-11). Conclusion: The appeals filed by the assessee were partly allowed, with the Tribunal directing a 15% disallowance on the bogus purchases instead of the 25% upheld by the CIT (A). The order was pronounced in the Open Court on 14th March 2023.
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