2021 (3) TMI 818 - AT - Income Tax

Estimation of income - bogus purchases - DR submits that the estimation of profit @ 8% done by the AO and then affirmed by the Ld. CIT(A) being reasonable - HELD THAT - We set aside the order of the Ld. CIT(A) and direct the AO to restrict the additions limited to the extent of bringing the G.P. rate on disputed purchases at the same rate of other genuine purchases

Summary

Issues:
Appeal against CIT(A)'s order upholding addition on alleged non-genuine purchases.

Analysis:
The appeal was filed against the CIT(A)'s order confirming the addition made by the AO regarding alleged non-genuine purchases. The assessee submitted invoices, bank statements, and payment details to prove the genuineness of the transactions. However, the AO estimated profit at 8% of the disputed purchases and added ?1,06,090 to the income. The CIT(A) upheld this addition, stating that the purchases were found to be bogus, aiming to inflate purchase prices to suppress true profits. The assessee argued that payments were made through account payee cheques, and profits were recorded in financial statements and income tax returns.

The assessee relied on a Bombay High Court judgment in a similar case to support their argument. The case cited involved entities supplying bogus bills, leading to disputes over purchases. The High Court emphasized that purchases cannot be rejected without affecting sales, and additions should be limited to maintaining the gross profit rate on disputed purchases similar to genuine ones. Following this precedent, the tribunal set aside the CIT(A)'s order and directed the AO to restrict additions to align with the gross profit rate on genuine purchases.

In conclusion, the tribunal allowed the appeal for statistical purposes, emphasizing the importance of maintaining consistency in gross profit rates on purchases and highlighting the need to consider both purchases and sales in such disputes.