2023 (7) TMI 331 - AT - Income Tax

Estimation of income - Bogus purchases - Average rate of gross profit declared by the assessee is more than 17%, which was stated to be more than the industry average - HELD THAT - We noticed earlier that the manufacturing loss declared by the assessee was less than the SION standards prescribed by DGFT. The gross profit rate declared by the assessee was more than the industry average. Hence, in the normal circumstances, no disallowance of purchases is called for. However, since some of the suppliers have stated that they have not supplied the materials and since the AO DGCEI has opined that the assessee might have procured materials from others, it is possible that the assessee could have made some profit in such an exercise. Hence, in order to take care of revenue leakages, if any, some addition is called for. Thus we modify the order passed by Ld CIT(A) in all these years and direct the AO to restrict the addition on account of non-genuine purchases to 2% of the value of alleged bogus purchases in both the years., i.e., AY 2014- 15 and 2015-16. TP adjustment in respect of Commission on Corporate Guarantee given to the Associated Enterprises by the assessee -TPO made adjustment @ 1.50% of the Guarantee amount given by the assessee - HELD THAT - We notice that the co-ordinate bench of Tribunal has examined an identical issue in the assessee s own case in AY 2010-11 and the Tribunal has restricted the rate of commission at 0.50% of the value of loan actually availed by the Associated Enterprises. In this regard, the Tribunal has followed the decision rendered in the case of Everest Canto Cylinders Ltd 2015 (5) TMI 395 - BOMBAY HIGH COURT - Since the decision rendered by Ld CIT(A) on this issue is covered by the decision rendered by the jurisdictional High Court and the Tribunal, we do not find any reason to interfere with the decision so taken by Ld CIT(A) on this issue. Addition made towards cash component paid in purchase of agricultural land - AO made the addition on the basis of a draft agreement found in the laptop of Shri Shalin Thaker - HELD THAT - Discrepancies noticed in the draft agreement and also the fact that the AO did not conduct proper enquiries to find the veracity of the draft agreement would drive us to conclude that the AO could not have placed reliance on the draft agreement in entirety without corroborating the same with any independent enquiries. The above said view of ours finds supports from the decision of AKME PROJECTS LTD. 2013 (12) TMI 197 - DELHI HIGH COURT as held draft agreement to sell could have been the starting point of investigation and further detailed verification, which has not been carried out. Decided in favour of assessee.

Summary

Issues Involved:
1. Partial confirmation of addition relating to alleged bogus purchases.
2. Partial confirmation of addition relating to Corporate Guarantee commission.
3. Addition towards alleged cash component in purchase of agricultural lands.

Summary:

1. Partial Confirmation of Addition Relating to Alleged Bogus Purchases:
The first issue pertains to the addition made on account of alleged bogus purchases. During the search proceedings, it was found that the assessee purchased goods from various entities that were suspected of providing accommodation bills without supplying materials. The AO disallowed the entire purchase amount of Rs. 15,30,36,741/-, but the Ld CIT(A) restricted the addition to 6% of the purchase value. The Tribunal noted that the assessee provided documentary evidence to prove the genuineness of the purchases and that the manufacturing loss declared was within the prescribed limit of Standard Input Output Norms (SION). The Tribunal also considered the gross profit rate, which was higher than the industry average. Consequently, the Tribunal directed the AO to restrict the addition to 2% of the value of alleged bogus purchases, modifying the order of the Ld CIT(A).

2. Partial Confirmation of Addition Relating to Corporate Guarantee Commission:
The second issue involves the transfer pricing adjustment concerning the commission on Corporate Guarantee provided by the assessee to its Associated Enterprises. The TPO made an adjustment at 1.50% of the guarantee amount, but the Ld CIT(A) restricted it to 0.50% based on the Tribunal's decision in the assessee's own case for AY 2010-11 and the Bombay High Court's decision in Everest Canto Cylinders Ltd. The Tribunal upheld the Ld CIT(A)'s decision, finding no reason to interfere as it was consistent with the jurisdictional High Court and Tribunal's decisions.

3. Addition Towards Alleged Cash Component in Purchase of Agricultural Lands:
The third issue relates to the addition of Rs. 1,23,19,000/- towards the alleged cash component in the purchase of agricultural land. The AO based the addition on an unsigned draft sale agreement found in a laptop, which mentioned a cash payment component. The assessee contended that the draft agreement was prepared during negotiations and was never executed. The Tribunal noted several discrepancies in the draft agreement and found that the AO did not conduct proper inquiries to corroborate the draft agreement's veracity. Citing the Delhi High Court's decision in CIT vs. AKME Projects Ltd, the Tribunal concluded that the addition could not be sustained and directed the AO to delete the addition.

Conclusion:
The appeal of the assessee was partly allowed, with the Tribunal modifying the addition for bogus purchases to 2%, upholding the Ld CIT(A)'s decision on the Corporate Guarantee commission, and deleting the addition towards the alleged cash component in the purchase of agricultural lands.