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2020 (12) TMI 206 - AT - Income TaxEstimation of income - bogus purchases - CIT(A) directing the ld. AO to tax only the profit element embedded in the bogus purchases @12.5% - HELD THAT - The fact of consumption of materials are not disputed by the revenue. We find that the ld. CIT(A) had categorically recorded a finding that the assessee could have made only purchases from the grey market by way of inflation of some purchase price so as to suppress the true profits. By this process, the profit embedded thereof in the entire transaction was assumed to be 12.5% by the ld. CIT(A). Tribunal in series of decisions had held that profit percentage of 12.5% would meet the ends of justice on the alleged bogus purchases in the similar industries in which assessee is engaged into. No infirmity in the order of the ld. CIT(A) granting relief to the assessee. - Appeal of the revenue is dismissed.
Issues: Determination of profit element in bogus purchases for taxation.
Detailed Analysis: 1. Background: The appeal in ITA No.2318/Mum/2019 for A.Y.2011-12 arose from an order by the ld. Commissioner of Income Tax (Appeals)-16, Mumbai against the order of assessment passed u/s.143(3) rws 147 of the Income Tax Act, 1961 by the ld. Income Tax Officer 9(2)(2), Mumbai. 2. Main Issue: The central issue was whether the ld. CIT(A) was justified in directing the ld. AO to tax only the profit element embedded in the bogus purchases @12.5% in the given circumstances. 3. Assessee's Business: The assessee was engaged in the business of supply of chlorination equipments and chlorination plants. The assessment was reopened based on information indicating certain purchases from parties listed as hawala dealers. 4. Assessee's Explanation: The assessee explained that purchases were made through agents who sometimes provided goods with fake bills from hawala parties. The assessee claimed innocence regarding the origin of these bills and emphasized the utilization of purchased materials in the manufacturing process. 5. AO's Findings: The ld. AO raised concerns about the lack of documentary evidence to prove suppliers' identities, absence of delivery challans and other supporting documents, and the inability to verify the purchases. Consequently, the ld. AO rejected the book results to the extent of erroneous purchases. 6. CIT(A)'s Observations: The ld. CIT(A) noted that while the assessee provided evidence of payments and material consumption, the inability to verify the purchase parties' existence hindered the burden of proof. The ld. CIT(A) found the parties in question non-existent, leading to an estimation of profit at 12.5% instead of the 36.5% estimated by the ld. AO. 7. Tribunal's Decision: The Tribunal upheld the ld. CIT(A)'s decision, emphasizing that the fact of material consumption was undisputed. It concurred with the 12.5% profit estimation, citing previous decisions in similar industry cases. The Tribunal dismissed the revenue's appeal, affirming the relief granted to the assessee. 8. Conclusion: The Tribunal's ruling favored the assessee, highlighting the importance of substantiating purchases and profit elements in cases of alleged bogus transactions. The decision underscored the significance of evidence and burden of proof in tax assessments, ultimately upholding the principle of fair taxation based on verifiable facts. Judgment: The appeal of the revenue was dismissed, and the order was pronounced on 10/09/2020.
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