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2016 (12) TMI 879 - AT - Income TaxBogus purchases - addition u/s 69C - profit element in accommodation entries - Held that - The conclusion of the ld. CIT(A) that the assessee has purchased material from some other dealers but quantitative reconciliation of the stock was duly done by the assessee of the sale and purchase and hence the profit element in this accommodation entries are to be added to the income cannot be faulted . The ld. CIT(A) restricted the addition by estimating GP ratio of 12.5% of ₹ 1,13,44,778/- being purchases from these alleged four accommodation entry providers. We do not find any infirmity in the well reasoned order of the ld. CIT(A) whereby net profit was estimated which was a reasonable estimation made by learned CIT(A) and we sustain/affirm the order of learned CIT(A). In the result , we dismiss both the appeal of the assessee as well of Revenue.
Issues Involved:
1. Estimation of undisclosed profit on alleged bogus purchases. 2. Justification of invoking Section 69C of the Income-tax Act, 1961. 3. Validity of the addition of opening balance of purchases from earlier years. 4. Acceptance of sales and rejection of purchases. 5. Burden of proof on the assessee to substantiate the genuineness of purchases. Detailed Analysis: 1. Estimation of Undisclosed Profit on Alleged Bogus Purchases: The assessee challenged the CIT(A)'s decision to estimate the undisclosed profit at 12.5% on alleged bogus purchases amounting to ?1,13,44,778/-. The CIT(A) observed that the purchases made from four parties were found to be bogus, as per the information from the Sales Tax Department, Government of Maharashtra. The CIT(A) concluded that the element of profit embedded in these bogus purchases needed to be computed. The profit margin was estimated at 12.5% of the purchases made during the year, which amounted to ?14,18,097/-. The Tribunal upheld this estimation, finding no infirmity in the CIT(A)'s well-reasoned order. 2. Justification of Invoking Section 69C of the Income-tax Act, 1961: The Revenue's appeal challenged the deletion of the addition made by the AO under Section 69C, which was initially ?1,31,88,227/-. The AO had invoked Section 69C, deeming the expenditure on purchases from the four parties as unexplained, based on the peak credit balance. The CIT(A) restricted the addition to the profit element embedded in the purchases, estimating it at 12.5% of ?1,13,44,778/-. The Tribunal agreed with the CIT(A) that the assessee had made purchases from unknown entities, and the profit element needed to be computed rather than adding the entire amount under Section 69C. 3. Validity of the Addition of Opening Balance of Purchases from Earlier Years: The CIT(A) observed that the AO had wrongly included the opening balance of ?18,43,451/- from earlier years in the addition. The assessee argued that the addition of the opening balance was unjustified as it pertained to purchases from the previous year and no unexplained expenditure was incurred in the current year. The Tribunal upheld the CIT(A)'s decision to exclude the opening balance from the addition, as the purchases were not claimed as expenses in the impugned year. 4. Acceptance of Sales and Rejection of Purchases: The AO accepted the sales made by the assessee but doubted the purchases from the four parties listed as bogus by the Sales Tax Department. The assessee provided quantitative reconciliation of stock, showing a direct nexus between purchases and sales. The CIT(A) concluded that the purchases were made from some other parties, and the profit element in these accommodation entries needed to be added. The Tribunal affirmed this view, noting that the AO had not doubted the genuineness of the sales. 5. Burden of Proof on the Assessee to Substantiate the Genuineness of Purchases: The assessee provided various documentary evidence, including purchase bills, delivery challans, and bank statements, to substantiate the genuineness of the purchases. However, the AO found these insufficient, as the notices issued to the four parties returned unserved and the assessee failed to produce these parties. The Tribunal agreed with the CIT(A) that the assessee had discharged the primary onus, and the AO had not provided contrary evidence to prove the purchases were ingenuine. The Tribunal upheld the CIT(A)'s estimation of the profit element at 12.5% of the purchases. Conclusion: The Tribunal dismissed both the appeals filed by the assessee and the Revenue, affirming the CIT(A)'s decision to estimate the undisclosed profit at 12.5% of the alleged bogus purchases and restricting the addition under Section 69C to this profit element. The Tribunal found the CIT(A)'s order to be well-reasoned and justified based on the evidence and circumstances of the case.
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