2020 (4) TMI 563 - AT - Income Tax

Estimation of profit - bogus purchases - estimation of profit element @ 12.5% - HELD THAT - In a case where purchases are considered to be purchased from suspicious/hawala dealers, various High Courts and Tribunals had considered an identical issue in light of investigation carried out by the Sales Tax Department and held that in case of purchases claims to have made from alleged hawala dealers, only profit element embedded in those purchases needs to be taxed, but not total purchase from those parties - See SIMIT P SHETH 2013 (10) TMI 1028 - GUJARAT HIGH COURT Considering facts and circumstances of this case and consistent with view taken by the Co-ordinate Bench in number of cases, we are of the considered opinion that the ld. AOP as well as the ld. CIT(A) have taken fairly reasonable view and estimated 12.50% profit of alleged bogus purchases. We, therefore are of the view that there is no reason to interfere with orders of the CIT(A) - Decided against assessee.

Summary

Issues Involved:
1. Addition of profit element on unproved purchases.
2. Condonation of delay in filing the appeal.
3. Initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Addition of Profit Element on Unproved Purchases:
The primary issue in these appeals is the addition of ?7,13,462/- made by the Assessing Officer (AO) to the income of the appellant on account of a 12.5% profit element embedded in unproved purchases amounting to ?57,07,700/-. The AO based this addition on information from the Sales Tax Department about suspicious dealers and rejected the book results under Section 145(3). The appellant contended that all purchases were genuine, supported by sufficient materials, and backed by corresponding sales. Payments were made by account payee cheques, and there was no evidence that money exchanged hands in lieu of these payments. The appellant also argued that the AO neither provided copies of materials and statements relied upon nor allowed any opportunity to cross-examine the parties alleged to have provided the bogus entries.

The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's addition, referencing the Hon'ble Gujarat High Court decision in CIT vs. Simith P. Sheth (356 ITR 451), which dealt with similar issues. The CIT(A) noted that the appellant had not purchased from the named parties but from the grey market, justifying the 12.5% profit addition. The Income Tax Appellate Tribunal (ITAT) agreed with the CIT(A), stating that both the AO and the CIT(A) had taken a reasonable view by estimating a 12.5% profit on the alleged bogus purchases. The ITAT emphasized that the issue of non-genuine purchases is factual and must be considered in light of each case's specifics.

2. Condonation of Delay in Filing the Appeal:
The appellant filed appeals for AY 2009-10 and AY 2011-12 with delays of 198 days and 180 days, respectively. The appellant submitted a petition for condonation of delay, explaining that the delay was due to a mistake by the accountant. The Department Representative did not oppose the application. The ITAT, considering the reasons provided, deemed it appropriate to condone the delay and admitted the appeals for both years to decide the issues on merits.

3. Initiation of Penalty Proceedings under Section 271(1)(c):
The appellant disputed the initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961, arguing that it was premature. The CIT(A) held that the ground raised by the appellant disputing the initiation of penalty proceedings was premature, and the appellant denied liability for such a penalty.

Conclusion:
The ITAT dismissed the appeals for both AY 2009-10 and AY 2011-12, upholding the CIT(A)'s decision to confirm the addition of 12.5% profit on the alleged bogus purchases. The ITAT found the profit rate adopted by the AO and CIT(A) to be reasonable given the nature of the appellant's business. The appeals were dismissed, and the orders of the CIT(A) were upheld.