2021 (5) TMI 297 - AT - Income Tax

Estimation of income - Bogus purchases - CIT(A) restricting the suppressed profit to the extent of 12.5% of the purchases made from the bogus entities - HELD THAT - We noticed that the CIT(A) has allowed the claim of the assessee on the basis of decision of Hon ble Bombay High Court Nikunj Eximp 2013 (1) TMI 88 - BOMBAY HIGH COURT and Balaji Textile 1993 (8) TMI 100 - ITAT BOMBAY-B and Bholanath Polyfab Pvt. Ltd. 2013 (10) TMI 933 - GUJARAT HIGH COURT In the instant case, sale is not doubted, therefore, the CIT(A) has restricted the addition to the extent of 12.5% of the total bogus purchase . The facts are not distinguishable at this stage. Taking into account, all the facts and circumstances, we are of the view that the CIT(A) has decided the matter of controversy judiciously and correctly which is not liable to be interfere with at this appellate stage. Appeal filed by the revenue is hereby dismissed.

Issues Involved:
1. Justification of restricting suppressed profit to 12.5% of purchases from bogus entities.
2. Validity of purchases from entities proven as accommodation entry providers.
3. Consideration of Supreme Court decision in NK Proteins Ltd. Vs. DCIT.
4. Evaluation of evidence and surrounding circumstances in determining bogus purchases.

Detailed Analysis:

1. Justification of Restricting Suppressed Profit to 12.5% of Purchases from Bogus Entities:
The revenue challenged the CIT(A)'s decision to restrict the suppressed profit to 12.5% of the purchases made from bogus entities. The CIT(A) based this decision on various precedents, including the Hon'ble Bombay High Court's decision in Nikunj Eximp and Bholanath Polyfab Pvt. Ltd. The CIT(A) noted that while the purchases were made from non-existent parties, the sales were not doubted. Therefore, it was reasonable to estimate the suppressed profit margin embedded in such purchases rather than disallowing the entire purchase amount. This approach was deemed judicious and correct by the ITAT, which upheld the CIT(A)'s finding.

2. Validity of Purchases from Entities Proven as Accommodation Entry Providers:
The CIT(A) found that the assessee failed to produce supporting documentary evidence to prove the genuineness of the transactions with the alleged bogus entities. The Sales Tax Department's investigation revealed that these entities were providing only accommodation entries. The CIT(A) emphasized that the onus of proving the genuineness of the transactions lay with the assessee, as per the Supreme Court's rulings in CIT Vs. Durgaprasad More and Sumati Dayal Vs. CIT. Despite the assessee's inability to produce the suppliers, the CIT(A) allowed the claim by estimating the suppressed profit at 12.5%, considering the surrounding circumstances and human probabilities.

3. Consideration of Supreme Court Decision in NK Proteins Ltd. Vs. DCIT:
The revenue argued that the CIT(A) ignored the Supreme Court's decision in NK Proteins Ltd. Vs. DCIT, which dealt with the treatment of bogus purchases. However, the CIT(A) distinguished the present case by noting that the sales were not doubted, and only the profit element embedded in the purchases needed to be taxed. The ITAT agreed with this approach, stating that the CIT(A) had correctly applied the principles laid down in relevant case laws, including Bholanath Polyfab Pvt. Ltd. and Simit Sheth, which supported taxing the profit element rather than the entire purchase amount.

4. Evaluation of Evidence and Surrounding Circumstances in Determining Bogus Purchases:
The CIT(A) and ITAT emphasized the importance of evaluating the evidence and surrounding circumstances in determining the genuineness of the purchases. The CIT(A) relied on various judicial precedents, including the Supreme Court's rulings in Durgaprasad More, Sumati Dayal, and McDowell & Co., to conclude that the apparent must be considered real until proven otherwise. The CIT(A) found that the assessee failed to discharge the burden of proving the genuineness of the transactions. However, considering that the sales were not doubted, the CIT(A) reasonably estimated the suppressed profit at 12.5% of the bogus purchases.

Conclusion:
The ITAT upheld the CIT(A)'s decision to restrict the suppressed profit to 12.5% of the purchases made from bogus entities, considering the surrounding circumstances and judicial precedents. The appeals filed by the revenue were dismissed, affirming the CIT(A)'s findings and approach in estimating the profit element embedded in the bogus purchases. The ITAT found no reason to interfere with the CIT(A)'s decision, which was deemed judicious and correct.

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