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2022 (6) TMI 404 - AT - Income TaxEstimation of income - bogus purchases - HELD THAT - When no discreet enquiry has been made by the AO qua the alleged bogus purchases by perusing/rejecting the books of accounts of the assessee rather proceeded to make the addition by taking peak balances of the alleged purchases and at the same time the Ld. CIT(A) has also estimated the addition being the 12.5% of the bogus purchases as gross profit, the view taken by the Ld. CIT(A) is a plausible view which is in consonance with the decision rendered by the Hon ble Gujarat High Court in the case of Simit P. Sheth 2013 (10) TMI 1028 - GUJARAT HIGH COURT and JK Surface Coatings Pvt. Ltd. 2021 (10) TMI 1323 - BOMBAY HIGH COURT No doubt, the reasoning given by the Ld. CIT(A) to estimate the gross profit at 12.5% is plausible but not in consonance with the past history of the assessee who has gross profit of 6.41% on its actual purchases made during the year under consideration i.e. Rs.11,34,14,455/-. So the gross profit needs to be estimated on the basis of gross profit otherwise being earned by the assessee on genuine purchases. In these circumstances we deem 6.41% as the reasonable gross profit on the gross purchases of Rs.1,55,19,372/- keeping in view the gross profit on genuine purchases. The AO is directed to compute the gross profit of 6.41% on bogus purchases in order to make addition thereof to the assessee.
Issues:
1. Disposal of appeal and cross objections with common question of law and facts. 2. Restriction of addition to 12.5% of total bogus purchases. 3. Applicability of section 69 of the Income Tax Act, 1961. 4. Consideration of previous court judgments on similar issues. 5. Estimation of profits on alleged bogus purchases. 6. Challenge to the impugned order by the Revenue. 7. Determination of ad-hoc disallowance for bogus purchases. 8. Calculation of reasonable gross profit on bogus purchases. Issue 1: Disposal of appeal and cross objections The appeal and cross objections with common questions of law and facts were disposed of by a composite order for the Appellant Dy. CIT 19(1), Mumbai (Revenue) and Mr. Hemantkumar Sumermal J. Bhansali (assessee). Issue 2: Restriction of addition to 12.5% of total bogus purchases The dispute revolved around whether the Ld. CIT(A) erred in restricting the addition to 12.5% of total bogus purchases, considering the bills from hawala dealers and unknown parties without goods received, and the applicability of section 69 of the IT Act, 1961. Issue 3: Applicability of section 69 of the Income Tax Act, 1961 The Ld. CIT(A) had to determine if section 69C applied to the unexplained expenditure of Rs.95,36,617/- as peak balances from alleged purchases, treated as unexplained expenditure by the Assessing Officer. Issue 4: Consideration of previous court judgments The Ld. CIT(A) was challenged on not considering the Supreme Court and Gujarat High Court decisions related to similar issues of bogus purchases, which were argued to be applicable to the case at hand. Issue 5: Estimation of profits on alleged bogus purchases The Ld. CIT(A) estimated profits at 12.5% on alleged bogus purchases of Rs.95,36,617/-, emphasizing the need to consider the profit element embedded in non-genuine purchases. Issue 6: Challenge to the impugned order by the Revenue The Revenue contested the Ld. CIT(A)'s decision to restrict the addition to 12.5% of bogus purchases, arguing that there was no basis for such a restriction without specific challenge by the assessee. Issue 7: Determination of ad-hoc disallowance for bogus purchases The Tribunal considered the ad-hoc disallowance for bogus purchases, citing the need for evidence to determine the actual profit margin and the profit element embedded in such purchases. Issue 8: Calculation of reasonable gross profit on bogus purchases The Tribunal directed the calculation of a reasonable gross profit of 6.41% on the gross purchases of Rs.1,55,19,372/- based on the past history of the assessee, resulting in the partial allowance of the appeal and cross objections. This detailed analysis covers the various issues involved in the legal judgment delivered by the Appellate Tribunal ITAT MUMBAI, providing a comprehensive overview of the case and the decisions made by the authorities involved.
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