2023 (7) TMI 1040 - AT - Income Tax

Estimation of income - bogus purchases - AO estimated suppressed profit element on such goods at 12.5% - HELD THAT - Assessee has failed to show genuineness of the purchases and the parties from whom such purchases were made. We concur with the findings of the Authorities below that the assessee has indulged in obtaining bogus purchase bills from declared hawala dealers. As regards estimation of G.P on bogus purchases, we are of considered view that the estimation of G.P at 12.5% is on the higher side. Considering assesee s nature of business and the G.P already declared by the assessee in the impugned assessment year we deem it appropriate to restrict G.P on bogus purchases to 7.5% over and above the G.P already declared by the assessee. While quantifying bogus purchases the cost of fixed asset (machinery) purchased during the year has been included in bogus purchases - Assessee has already disclosed machinery in the block of assets and has claimed depreciation thereon. AO is directed to reduce the cost of machinery from the bogus purchases - the impugned order is modified to the extent mentioned herein above. The ground No.1 to 3 of the appeal are partly allowed.

Summary

Issues Involved:
- Estimated addition on account of bogus purchases
- Levy of interest under sections 234A, 234B, and 234C of the Income Tax Act
- Initiation of penalty proceedings under section 271(1)(c) of the Act

Summary:
Issue 1: Estimated addition on account of bogus purchases
The appellant, a partnership firm trading in iron and steel, challenged the addition of Rs. 25,23,995/- made by the Assessing Officer under section 69C of the Act for alleged bogus purchases. The appellant provided documents to substantiate the transactions, but the Assessing Officer disregarded them and estimated an addition of 12.5%. The CIT(A) dismissed the appeal in an ex-parte proceeding. The appellant argued that the estimation was on the higher side and that the cost of machinery should be excluded from the alleged bogus purchases. The Tribunal agreed that the estimation was high and reduced the estimated G.P. on bogus purchases to 7.5%.
The cost of machinery was directed to be reduced from the bogus purchases. Grounds 1 to 3 of the appeal were partly allowed.

Issue 2: Levy of interest under sections 234A, 234B, and 234C of the Act
The appellant contested the charging of interest under these sections, but the Tribunal dismissed the ground as charging interest was deemed mandatory and consequential.

Issue 3: Initiation of penalty proceedings under section 271(1)(c) of the Act
The appellant challenged the initiation of penalty proceedings, but the Tribunal dismissed the ground as premature, stating that challenging penalty proceedings at this stage was not appropriate.

In conclusion, the Tribunal partly allowed the appeal of the appellant, modifying the impugned order regarding the estimated addition on bogus purchases and dismissing the grounds related to interest and penalty proceedings.