2022 (11) TMI 377 - AT - Income Tax

Estimation of income - bogus purchases - HELD THAT - Keeping in view the gross profit earned by the assessee for the preceding years which is not more than 9%, addition @25% or 100% of bogus purchases is not sustainable in the eyes of law. Hence, direct the Assessing Officer to charge the assessee at the gross profit @9% on the bogus purchases for A.Y.2009-10 and for A.Y. 2010-11. Resultantly, appeals filed by the assessee are allowed.

Summary

Issues:
1. Disallowance of alleged bogus purchases for Assessment Years 2009-10 and 2010-11.
2. Enhancement of additions by CIT (A) and plea for withdrawal of penalty proceedings under section 271(1)(c).

Analysis:

Issue 1: Disallowance of alleged bogus purchases
- The Appellant sought to set aside the orders passed by the National Faceless Appeal Centre and CIT(A) regarding the assessment orders for the mentioned years.
- In AY 2009-10, the AO and CIT(A) made additions to alleged bogus purchases without concrete evidence, leading to an appeal by the assessee.
- The AO added Rs. 63,52,693 as unproved purchases, while in AY 2010-11, an addition of Rs. 43,53,676 was made by the AO.
- The CIT(A) partly allowed the appeal for AY 2009-10, restricting the addition to 25%, and enhanced the addition to 100% for AY 2010-11.
- The Tribunal considered the genuineness of purchases and the sales aspect, emphasizing the need for concrete evidence to substantiate allegations of bogus purchases.
- The Tribunal referred to various judicial authorities to support the argument that gross profit additions should be reasonable, typically ranging from 5% to 12.5% in such cases.
- The Tribunal highlighted that when sales are accepted as genuine, the entire amount of alleged bogus purchases cannot be added to the income.
- Relying on precedents and considering the gross profit earned by the assessee, the Tribunal directed the AO to charge gross profit at 9% on the alleged bogus purchases for both AYs, ultimately allowing the appeals filed by the assessee.

Issue 2: Enhancement of additions and withdrawal of penalty proceedings
- The CIT(A) enhanced the additions made by the AO for AY 2010-11, leading to the assessee's appeal before the Tribunal.
- The Tribunal emphasized the need for concrete evidence to support allegations of bogus purchases and highlighted the importance of considering gross profit additions within a reasonable range.
- The Tribunal referred to specific legal precedents and directed the AO to charge gross profit at 9% on the alleged bogus purchases for both AYs, ultimately allowing the appeals filed by the assessee.
- The Tribunal's decision was based on the principle that gross profit additions should be reasonable and supported by evidence, especially when sales are accepted as genuine.

This detailed analysis of the legal judgment highlights the key issues, arguments presented, and the Tribunal's decision based on legal principles and precedents.