2017 (10) TMI 231 - AT - Income Tax

Bogus purchases - Gross profit estimation - Held that - Bogus purchases and after considering the facts observed that no uniform yardstick can be applied for estimating gross profit on bogus purchases which is dependent upon the facts of different cases. The co-ordinate bench of ITAT, in a number of cases has taken a consistent view and directed the AO to estimate gross profit of 12.5% on alleged bogus purchases. Keeping in view we are of the considered view that estimation of gross profit at 12.5% on total alleged bogus purchases would meet the ends of justice. Therefore, we direct the AO to estimate gross profit at 12.5% on the alleged bogus purchases. We are of the view that the issue needs to be reexamined by the AO in the light of the claim of the assessee that the purchases from Shree Ganesh Trading Co has been taken twice for the purpose of estimation of gross profit. If the claim of the assessee is found to be correct, then the AO is directed to exclude the name of Shree Ganesh Trading Co from the second list of entities considered for estimation of gross profit on alleged bogus purchases. Hence, we set aside the issue for the limited purpose of verification of purchases from Shree Ganesh Trading Co and direct the AO to consider the issue in the light of explanation of the assessee before estimating the gross profit on alleged bogus purchases.

Summary

Issues:
Assessment based on alleged bogus purchases from entities listed by sales-tax department, Estimation of gross profit on alleged bogus purchases, Burden of proof on the assessee, Consideration of evidence and parties produced during assessment proceedings, Application of judicial precedents in estimation of gross profit, Treatment of purchases from specific entity in estimation of gross profit.

Issue 1: Assessment based on alleged bogus purchases from entities listed by sales-tax department
The appeal was against the assessment order for AY 2009-10, where the AO reopened the assessment due to alleged bogus bills obtained by the assessee from entities listed as hawala dealers by the sales-tax department. The AO added the alleged bogus purchases to the total income of the assessee, leading to the dispute.

Issue 2: Estimation of gross profit on alleged bogus purchases
The AO estimated a gross profit of 30.12% on the alleged bogus purchases, relying on the list from the sales-tax department. The CIT(A) observed that no addition was warranted as the purchases were genuine, considering the evidence provided by the assessee. The ITAT directed the AO to estimate gross profit at 12.5% on the alleged bogus purchases based on judicial precedents.

Issue 3: Burden of proof on the assessee
The Revenue argued that the burden of proof was on the assessee to a high degree, and failure to produce parties for cross-examination indicated the genuineness of purchases could not be established. The assessee contended that all details were furnished to justify the purchases, and absence of parties did not undermine the genuineness of transactions.

Issue 4: Consideration of evidence and parties produced during assessment proceedings
The AO made additions based on information from the Investigation Wing, indicating the assessee benefited from bogus purchase bills. The assessee provided documents supporting the purchases, but parties were not produced. The ITAT emphasized that the absence of parties did not automatically discredit the genuineness of purchases if proper documentation was provided.

Issue 5: Application of judicial precedents in estimation of gross profit
The ITAT considered various judicial precedents, directing the AO to estimate gross profit at 12.5% on alleged bogus purchases, citing cases where similar issues were addressed. The ITAT emphasized the need for a case-specific approach in estimating gross profit on bogus purchases.

Issue 6: Treatment of purchases from specific entity in estimation of gross profit
The assessee highlighted discrepancies in the treatment of purchases from a specific entity, urging the exclusion of certain amounts from the estimation of gross profit. The ITAT directed the AO to reexamine the issue and exclude the specific entity from the estimation if the claim was found to be valid.

This comprehensive analysis covers the key issues addressed in the legal judgment, providing a detailed overview of the assessment, estimation of gross profit, burden of proof, consideration of evidence, application of judicial precedents, and treatment of specific entities in the estimation process.