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2017 (5) TMI 901 - AT - Income TaxBogus purchases - Estimation of possible profit out of purchases made through non-genuine parties - Held that - Since purchases were not bogus but were made from parties other than those mentioned in the books of account, only profit element embedded in such purchases could be added to assessee s income. See CIT vs. Simit P. Seth 2013 (10) TMI 1028 - GUJARAT HIGH COURT In view of the above, the order of the learned CIT(A) directing the AO to estimate 12.5% of the bogus purchases of ₹ 25,67,420/- and tax only the profit embedded therein of ₹ 3,20,927/- is upheld. - Decided against assessee.
Issues:
- Addition of 12.50% on purchases without appreciating actual facts - Ignoring machinery purchase while confirming addition - Alleged involvement in bogus purchases - Addition of suppressed profit by way of bogus purchases - Reduction of amount by CIT(A) based on written-off purchases - Consideration of similar case and judgment by the Hon'ble Gujarat High Court - Assessee's submissions regarding purchases and traders involved - Support of the order by the learned DR - Failure to provide present address of parties, transport receipt, and maintain stock records - Reliance on various ITAT judgments by the assessee - Comparison with the judgment of the Hon'ble Gujarat High Court - Upholding the CIT(A) order to estimate profit on bogus purchases Analysis: 1. Addition of 12.50% on Purchases: The appeal challenged the addition of 12.50% on purchases without considering the actual facts. The CIT(A) confirmed the addition, leading to the appeal before the ITAT. The assessee argued that the addition should be deleted, emphasizing the machinery purchase not debited to purchases but shown as fixed assets. 2. Alleged Involvement in Bogus Purchases: The AO noted the assessee's involvement in bogus purchases based on information from the Sales Tax Department. The parties involved in these transactions were not verifiable, and essential documents like transport receipts were missing. The AO added the total amount of such purchases as suppressed profit. 3. Reduction by CIT(A) and Gujarat High Court Judgment: The CIT(A) reduced the amount based on evidence provided by the assessee, following a similar case and the judgment of the Hon'ble Gujarat High Court. The High Court's decision emphasized adding only the profit element embedded in such purchases, not the entire amount, if purchases were made from parties other than those mentioned in the books of account. 4. Assessee's Submissions and ITAT Judgments: The assessee submitted details of purchases and traders involved, asserting the genuineness of transactions. Various ITAT judgments were cited to support the claim. However, the failure to provide crucial information like the present address of parties and maintain stock records weakened the assessee's case. 5. Final Decision: The ITAT upheld the CIT(A) order to estimate 12.5% of the bogus purchases as profit embedded therein, resulting in a specific amount to be taxed. The decision was based on the principle established by the Hon'ble Gujarat High Court in similar cases, emphasizing the need to consider only the profit element in disputed purchases. This detailed analysis of the judgment highlights the key issues, arguments presented, supporting legal precedents, and the final decision rendered by the ITAT Mumbai.
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