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2023 (12) TMI 95 - AT - Income Tax


Issues involved:
The judgment deals with the estimation of profit element from alleged bogus purchases, the identity of the seller, and the justification of estimating gross profit on the purchases disallowed by the Assessing Officer.

Estimation of Profit Element from Alleged Bogus Purchases:
The Assessing Officer disallowed entire purchases due to the seller's untraceability, leading to the issue of proving the identity of the seller, S.S. Engineering Enterprises. The ld. CIT (Appeals) restricted the disallowance by estimating the gross profit at 4.81%, based on the G.P. declared by the assessee. The decision was influenced by the acceptance of sales made from the purchases and the absence of discrepancies in stock details. The Hon'ble Gujarat High Court's decisions in similar cases supported the view that only the profit element embedded in such purchases should be subjected to tax. The judgment directed the Assessing Officer to limit the disallowance to 12.5% of the purchases, differing from the 4.81% estimated by the ld. CIT (Appeals).

Identity of the Seller and Disallowance of Purchases:
The Assessing Officer disallowed purchases of Rs. 3,86,87,155 as the seller, S.S. Engineering Enterprises, was not found at the provided address, raising concerns about proving the identity. The ld. CIT (Appeals) observed that the appellant's purchases were made through payee cheques, sourced from the books of account, and the gross profit had been accepted. The decision highlighted that no discrepancy in stock details was pointed out by the Assessing Officer and emphasized that full disallowance for bogus purchases cannot be justified. The judgment concluded that the entire purchases should not be treated as unproved solely due to the seller's unavailability, estimating the profit element at 12.5% instead of 4.81% as determined by the ld. CIT (Appeals).

Justification of Estimating Gross Profit on Disallowed Purchases:
The ld. CIT (Appeals) estimated the gross profit at 4.81% based on the G.P. declared by the assessee, supported by decisions from the Delhi Bench and similar cases. In contrast, the ld. DR supported the Assessing Officer's order and referenced a decision from the Hon'ble Gujarat High Court. The judgment deliberated on whether the estimation of gross profit on disallowed purchases was justified, ultimately directing the Assessing Officer to restrict the disallowance to 12.5% of the purchases, differing from the percentages considered by the ld. CIT (Appeals) and the Assessing Officer.

 

 

 

 

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