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2021 (6) TMI 267 - AT - Income TaxEstimation of income - bogus purchases - CIT-A restricted addition to 12.5% of the bogus purchase - HELD THAT - CIT(A) has decided the matter of controversy on the basis of the decision of Bholanath Poly Fab Pvt. Ltd. 2013 (10) TMI 933 - GUJARAT HIGH COURT CIT Vs. Simit P. Sheth 2013 (10) TMI 1028 - 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 bogus purchase we are of the view that CIT(A) has decided the matter of controversy judiciously and correctly which is not liable to be interfere with at this appellate stage. Accordingly, we upheld the finding of the CIT(A) on this issue and decide this issue in favour of the assessee against the revenue.
Issues Involved:
1. Justification of restricting the addition to 12.5% of bogus purchases instead of 19.5% as made by the Assessing Officer (AO). Detailed Analysis: 1. Justification of restricting the addition to 12.5% of bogus purchases instead of 19.5% as made by the Assessing Officer (AO): The revenue filed an appeal against the order of the Commissioner of Income Tax (Appeals)-07, Mumbai [CIT(A)], which restricted the addition to 12.5% of the bogus purchases instead of the 19.5% made by the AO. The case pertained to the assessment year 2009-10, where the assessee filed a return declaring a total income of Rs. Nil. The return was initially processed under section 143(1) of the Income Tax Act, 1961, accepting the returned income. However, the case was later reopened under section 147, and a notice under section 148 was issued to the assessee based on information from the DGIT(Inv.) Wing, Mumbai, indicating that the assessee had taken bogus purchase accommodation entries amounting to Rs. 4,505,620 from six parties. The AO, after receiving the assessee's reply, raised the addition to 19.5% of the bogus purchase, assessing the total income at Rs. 878,590. The CIT(A), however, restricted the addition to 12.5% of the bogus purchase, which led to the revenue's appeal. The revenue argued that the CIT(A) wrongly reduced the addition to 12.5%, and the finding was not justifiable. The CIT(A) based its decision on several judicial pronouncements, including the case of M/s. Kanchwala Gems vs. JCIT, where it was held that payment by account payee cheque is not sufficient to establish the genuineness of purchases. The CIT(A) noted that the AO had formed views about the bogus nature of the purchases based on statements recorded by the Sales Tax Authorities and further independent inquiries. The AO found the impugned suppliers to be bogus parties but did not dispute the corresponding sales, estimating only the profit element embedded in the purchases. The CIT(A) referred to the Hon’ble Bombay High Court's decision in CIT v. Nikunj Eximp Enterprises (P.) Ltd., which held that purchases cannot be disallowed merely because suppliers did not appear before the AO if the assessee provided confirmations, bank statements, invoices, and stock reconciliation statements. The CIT(A) concluded that the purchases could not be entirely bogus, as there must be some corresponding purchases to achieve the reported sales. The CIT(A) found it reasonable to estimate the additional profit earned on these purchases rather than disallowing the entire purchases. The CIT(A) referred to various judicial pronouncements where courts consistently held that only a part of such purchases could be disallowed, particularly when corresponding sales were not doubted. The CIT(A) cited the Hon’ble Gujarat High Court's decisions in CIT-1 Vs Simit P. Sheth and CIT Vs. Bholanath Poly Fab (P) Ltd., where it was held that only the profit element embedded in such purchases should be added to the assessee's income. The CIT(A) concluded that an estimation of 12.5% of the profit embedded in the impugned purchases would meet the ends of justice and directed the AO to restrict the addition to Rs. 563,203 (12.5% of Rs. 4,505,620), granting relief for the balance amount of Rs. 3,15,387. The Tribunal, upon reviewing the CIT(A)'s findings and the judicial precedents cited, upheld the CIT(A)'s decision. The Tribunal noted that the CIT(A) had judiciously and correctly decided the matter by restricting the addition to 12.5% of the bogus purchases, and there was no reason to interfere with this decision at the appellate stage. Consequently, the appeal filed by the revenue was dismissed. Conclusion: The Tribunal upheld the CIT(A)'s decision to restrict the addition to 12.5% of the bogus purchases, finding it to be judicious and correctly decided based on relevant judicial precedents. The appeal filed by the revenue was dismissed.
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