2024 (8) TMI 689 - AT - Income Tax

Bogus purchases u/s 69C - assessee is dealing in bullion - estimation of GP rate - assessee has categorically pleaded that even at its peak, the gross profit rate in case of the bullion cannot be more than 0.15% - HELD THAT - The assessee has already shown GP rate of 0.13% on its sales which seems quite reasonable. The assessee has also demonstrated that if the purchases are held to be bogus and the corresponding expenses are reduced from the sales, the GP percentage, under such circumstances, would come to 26% of the sales, which is not possible in the business or trading of precious metals like gold and silver, wherein, the daily prices are regulated by market and by no regulator stretch of imagination it is possible to inflate the purchases. The addition of entire purchases of bullion by the assessee is not sustainable as per law. Even it is assumed that the assessee had made purchases from some other vendors, even then as pleaded by the assessee and not rebutted by the lower authorities, the maximum profit margin can be @ 0.15%. As submitted that under any circumstances at the most, the profit margin cannot be assessed more than 0.15% of the disputed purchases. Thus, is directed that in respect of disputed purchases AO will take GP rate @ 0.15% on the corresponding sales instead of @ 0.13% shown by the assessee. Appeal of the assessee is treated as partly allowed.

Summary

Issues Involved
1. Confirmation of addition of Rs. 85,13,92,096/- by the CIT(A) under Section 69C of the Income Tax Act on account of bogus purchases.
2. Assessment of the genuineness of purchases and corresponding sales in the bullion business.
3. Determination of the appropriate Gross Profit (GP) rate for the disputed purchases.

Issue-wise Detailed Analysis

1. Confirmation of Addition of Rs. 85,13,92,096/- by the CIT(A) under Section 69C of the Income Tax Act on Account of Bogus Purchases

The assessee, engaged in the bullion business through its proprietorship concern, was subjected to an addition of Rs. 85,13,92,096/- by the Assessing Officer (AO) under Section 69C of the Income Tax Act for alleged bogus purchases. The AO observed that the vendors from whom the bullion was purchased had not filed their income tax returns for the relevant assessment year. The vendors in question were Shravan Kumar, Ankit Kumar, Varun Kumar, Haripal, and Pappu Paswan.

The assessee provided various documents to substantiate the purchases, including GST returns, confirmation of accounts, invoices, and bank statements. However, the AO found discrepancies, such as:
- Bogus bills supporting the purchases.
- Debit and credit entries in bank accounts confirming ingenuine purchases.
- Non-response from suppliers to notices under Section 133(6) of the Act.
- Non-filing of returns by vendors.
- Vendors' business activities not relating to the supplied goods.
- Vendors' GST activities limited to the transaction period.

Despite further explanations and documents from the assessee, including railway tickets and stock registers, the AO rejected the claims, treating the purchases as bogus and adding the amount back to the income of the assessee. The CIT(A) upheld this addition.

2. Assessment of the Genuineness of Purchases and Corresponding Sales in the Bullion Business

The assessee argued that in the bullion business, there is little scope for bogus purchases or sales due to the low margin (0.08% to 0.15% of gross profit). The assessee provided turnover data for the last four years to support this claim. The sales were not disputed by the AO or CIT(A), and the assessee contended that sales could not occur without corresponding purchases.

The assessee furnished various documents to prove the genuineness of the purchases, including:
- Purchase invoices.
- Ledger accounts.
- Bank statements.
- Train tickets for delivery of goods.
- GSTR 2A forms.
- Stock registers.

The AO, however, rejected these documents, citing the self-created nature of the stock register and the lack of substantive evidence for the genuineness of the transactions. The AO also pointed out that the vendors had cancelled their GST registrations post-transactions, and there were mismatches in transaction amounts in GST returns and bank entries.

3. Determination of the Appropriate Gross Profit (GP) Rate for the Disputed Purchases

The Tribunal considered the rival submissions and noted that the bullion business typically involves personal delivery of goods rather than transportation through conventional means. The margin in bullion trading is very low, and the sales and closing stock were not disputed by the lower authorities.

The Tribunal found that the addition of the entire purchases was not sustainable. Even if the purchases were made from other vendors, the maximum profit margin in the bullion business could be 0.15%. The Tribunal directed the AO to take the GP rate at 0.15% on the corresponding sales instead of the 0.13% shown by the assessee.

Conclusion

The appeal of the assessee was partly allowed. The Tribunal directed the AO to apply a GP rate of 0.15% on the disputed purchases, considering the nature of the bullion business and the evidence provided by the assessee. The addition of the entire purchase amount was deemed unsustainable.