2018 (9) TMI 1086 - AT - Income Tax

Unexplained expenditure u/s 69C - N.P. estimation - Held that - The assessee could not substantiate the delivery of material and failed to produce any of the party for confirmation of accounts. Notices issued u/s 133(6) elicited no satisfactory response. All these factors cast a serious doubt on assessee s claim. Therefore, in such a situation, the addition, which could be made, was to account for profit element embedded in these purchase transactions to factorize for profit earned by assessee against possible purchase of material in the grey market and undue benefit of VAT against such bogus purchases. Therefore, on factual matrix, a composite addition @12.5% of bogus purchase, in our opinion, would be a reasonable estimation of additions - Decided partly in favour of assessee

Summary

Issues:
Appeal against additions on alleged bogus purchases for Assessment Year 2010-11.

Analysis:
The appeal contested the order of the Ld. Commissioner of Income-Tax (Appeals) regarding certain additions on account of alleged bogus purchases. The assessment for the impugned year was framed by the Ld. Income Tax Officer, where the income of the assessee was determined after additions. The assessee, engaged in the business of installation & repair of Air Conditioners, faced scrutiny due to purchases from suspicious entities. Despite defending the purchases with invoices and banking channel payments, they were treated as bogus by the Ld. AO.

The assessee appealed to the Ld. CIT(A) who partially upheld the additions. The Ld. CIT(A) increased the Gross Profit Ratio on bogus purchases and proposed additions for unexplained cash and commission. The assessee further appealed, challenging these additions. The Ld. Departmental Representative supported the lower authorities' stand.

Upon review, the Tribunal found the Ld. CIT(A)'s approach of proposing additions unjustified. Considering the nature of the assessee's business, where material purchase is essential for sales, and the turnover and banking channel payments were not disputed, a composite addition of 12.5% on alleged bogus purchases was deemed reasonable. The Tribunal confirmed the addition of ?7,45,793, while deleting other proposed additions.

In conclusion, the assessee's appeal was partly allowed, with the Tribunal's decision pronounced in an open court in June 2018.