2023 (6) TMI 1122 - AT - Income Tax

Estimation of income - bogus purchase - CIT(A) restricted the disallowance by estimating at 10% - HELD THAT - As decided in case of Simit Sheth 2013 (10) TMI 1028 - GUJARAT HIGH COURT held that since the purchases were not bogus, but were made from parties other than those mentioned in books of accounts, only the profit element embedded in such purchases could be added to the assessee's income and as such no question of law arose in such estimation While arriving at the above conclusion, also relied on the decision in the case of Vijay M. Mistry Construction Ltd 2011 (1) TMI 1164 - GUJARAT HIGH COURT and further approved the decision of Vijay Proteins 1996 (1) TMI 144 - ITAT AHMEDABAD-C Also in the case of CIT-II vs Gujarat Ambuja Exports Ltd. 2014 (3) TMI 147 - GUJARAT HIGH COURT wherein, the addition of 5% of the bogus purchase confirmed by the Tribunal was upheld. No hesitation in confirming the addition to the extent of 10% on account of alleged bogus purchase. Thus the grounds raised by the Revenue is devoid of merit and the same is hereby dismissed

Summary

Issues Involved:
1. Disallowance of bogus purchases.
2. Restriction of disallowance to 10% of the alleged bogus purchases.
3. Validity of the entire disallowance of Rs. 4,17,13,702/-.

Summary:

1. Disallowance of Bogus Purchases:
The Assessing Officer (A.O.) determined that the assessee, a partnership firm engaged in civil construction, made bogus purchases amounting to Rs. 4,17,13,702/- from six suppliers. The A.O. based this conclusion on the fact that the suppliers were not found at their given addresses and did not respond to summons.

2. Restriction of Disallowance to 10%:
The Commissioner of Income Tax (Appeals) [CIT(A)] restricted the disallowance to 10% of the alleged bogus purchases, amounting to Rs. 41,71,370/-. The CIT(A) justified this by referencing judicial pronouncements, including those from the Gujarat High Court and the Supreme Court, which suggested that only the profit element embedded in such purchases should be taxed. The CIT(A) noted that the assessee had provided adequate documentation, such as invoices and bank statements, to support the purchases and payments made.

3. Validity of Entire Disallowance:
The Revenue appealed against the CIT(A)'s decision, arguing that the entire amount of bogus purchases should be disallowed. The Revenue cited the Supreme Court's decision in N.K. Protiens Ltd., which held that the entire transaction should be considered bogus if the purchases were found to be so. The Tribunal, however, upheld the CIT(A)'s decision, noting that the A.O. had not cross-verified the details with the VAT Department and had not doubted the sale of flats constructed by the assessee. The Tribunal referenced multiple judicial precedents that supported the restriction of disallowance to the profit element embedded in the purchases.

Conclusion:
The Tribunal dismissed both the Revenue's appeal and the assessee's cross-objection, thereby confirming the CIT(A)'s decision to restrict the disallowance to 10% of the alleged bogus purchases. The Tribunal found no merit in the arguments presented by the Revenue and the assessee, emphasizing that the CIT(A)'s approach was in line with judicial precedents. The order was pronounced in the open court on 23-06-2023.