2023 (4) TMI 337 - AT - Income Tax

Estimation of income - Bogus purchases - CIT(A) held that genuineness of impugned purchases cannot be accepted as the assessee failed to discharge its onus fully but entire gross amount of purchase also cannot be disallowed, thus ddition to extent of 10% of alleged bogus purchases - HELD THAT - As entire amount of bogus purchases shown by the assessee cannot be treated as income of the assessee. What best can be added in the given facts and circumstances is the profit embedded in such transaction of bogus purchases. To determine the profit embedded in such bogus purchases, there is no standard formula prescribed under the provisions of law. However, we note that, the different Hon ble Court in such facts and circumstances have adopted the basis of estimating the income based on some percentage. In the case on hand, the learned CIT(A) after referring to the judgment of Gurubachhan Singh J Juneja 2008 (2) TMI 177 - GUJARAT HIGH COURT and CIT vs. Bholanath Poly Fab. Pvt. Ltd. 2013 (10) TMI 933 - GUJARAT HIGH COURT estimated the profit embedded in alleged bogus purchases @ 10% of such purchases. The learned DR before us has not brought any contrary material against the finding of the learned CIT(A). Decided against revenue.

Summary

Issues involved:
The only issue raised by the Revenue is the deletion of addition made by the AO on account of bogus purchases.

Summary:

Issue 1: Deletion of addition on account of bogus purchases
The appeal was filed by the Assessee against the order of the Commissioner of Income Tax (Appeals) concerning the assessment order for the Assessment Year 2016-2017. The Assessee, a partnership firm engaged in real estate business, had faced disallowance and addition to its total income due to alleged bogus purchases from 7 parties. The Commissioner confirmed an addition of 10% of the alleged bogus purchases, noting that while the genuineness of the purchases could not be fully accepted, disallowing the entire gross amount was not justified. The Assessee's argument that no disallowance was warranted was rejected, and the Commissioner relied on case laws to support the partial disallowance. The Tribunal upheld the Commissioner's decision, emphasizing that the entire amount of bogus purchases should not be treated as income, and only the profit margin embedded in such transactions should be taxed. The Tribunal found no error in the Commissioner's estimation of the profit embedded in the alleged bogus purchases at 10%, as supported by relevant case laws. The Revenue's appeal was dismissed as no contrary material was presented against the Commissioner's findings.

In conclusion, the Appellate Tribunal upheld the decision of the Commissioner to partially disallow the alleged bogus purchases and confirmed the addition of 10% of the amount. The Tribunal emphasized that only the profit margin embedded in such transactions should be subjected to tax, in line with established case laws. The Revenue's appeal was dismissed, and the decision was pronounced in court on 31/03/2023 at Ahmedabad.