2019 (11) TMI 653 - AT - Income Tax

Bogus purchases - Addition as assessee had failed to produce bills, vouchers and other documentary evidences in support of his claim - CIT-A deleted the addition partly - HELD THAT - We have gone through the impugned order and herd both the parties Ld. CIT(A) has mentioned several orders of the High Court and Co-ordinate Benches wherein similar facts and circumstances Tribunal as estimated the gross profit addition in the hands of the purchaser on account of such bogus purchases @ 12.5%. As decided in SHRI ASHWIN PURSHOTAM BAJAJ 2016 (12) TMI 879 - ITAT MUMBAI conclusion of the Id. 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 Id. 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 Id. 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) - Decided against revenue

Summary

Issues Involved:
1. Deletion of addition on account of bogus purchases.
2. Estimation of profit from hawala purchases.
3. Reversal of CIT(A)'s order and restoration of the Assessing Officer's order.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Bogus Purchases:
The Revenue challenged the deletion of ?2,40,240/- made by the Assessing Officer (AO) for bogus purchases, arguing that the assessee failed to produce bills, vouchers, and other documentary evidence. The AO relied on the Apex Court decision in N K Protein Ltd., which held that once purchases are proven bogus, the addition should be made on the entire purchase amount, not just the profit element. The AO contended that the assessee did not fulfill the basic onus of producing delivery challans, transport bills, etc.

2. Estimation of Profit from Hawala Purchases:
The CIT(A) estimated the profit from hawala purchases by disallowing only ?34,320/- (12.5% of the bogus purchases). The Revenue argued that the assessee did not fulfill the basic onus of producing delivery challans, transport bills, etc. The CIT(A) referred to several High Court and Tribunal orders where a 12.5% gross profit addition was made in similar cases. The CIT(A) considered the facts that the assessee had made purchases of ?8,89,60,514/-, with ?2,74,560/- from M/s Monarch Enterprise. The assessee provided invoices, ledger copies, and bank statements to substantiate the purchases, which were made at prevailing market prices and consumed for making furniture. The CIT(A) noted that the purchases were made through proper banking channels and VAT dues were paid. The AO did not provide evidence to prove that the party was fictitious.

3. Reversal of CIT(A)'s Order and Restoration of the Assessing Officer's Order:
The Revenue prayed for the reversal of the CIT(A)'s order and restoration of the AO's order. The Tribunal reviewed the impugned order and heard both parties. The CIT(A) referred to several Co-ordinate Bench orders where similar facts and circumstances led to a 12.5% gross profit addition on bogus purchases. The Tribunal cited cases like Shri Ashwin Purshotam Bajaj vs. ITO, Smt. Kiran Navin Doshi vs. ITO, and ITO vs. Manish Kanji Patel, where the profit element embedded in bogus purchases was estimated at 12.5%. The Tribunal found no infirmity in the CIT(A)'s well-reasoned order and dismissed the Revenue's appeal.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to estimate the profit from bogus purchases at 12.5% and dismissed the Revenue's appeal. The Tribunal emphasized that the assessee had provided sufficient evidence to substantiate the purchases and that the AO failed to prove the purchases were fictitious. The Tribunal found the CIT(A)'s approach consistent with previous judicial pronouncements in similar cases.