Appeal on Alleged Bogus Purchases: Tribunal Allows Revenue's Partial Appeal

The revenue's appeals against the CIT(A)-24, Mumbai's order regarding alleged bogus purchases by a software development and consulting company were partly allowed by the Tribunal. The Tribunal directed the Assessing Officer to estimate the net profit at 20% on the alleged bogus purchases for each assessment year, differing from the revenue's proposed 15% estimation. The Tribunal emphasized that the company provided evidence to support the purchases, leading to the conclusion that a 20% estimation was appropriate based on the circumstances of the case.

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Issues:
Assessment of alleged bogus purchases as unexplained income.

Analysis:
1. The appeals by the revenue were against the common order of the CIT(A)-24, Mumbai for the assessment years 2010-11 and 2011-12. The case involved the assessment of alleged bogus purchases made by the assessee company engaged in software development and consulting.

2. The Assessing Officer (AO) issued a show cause notice based on information from the Investigation Wing that the assessee obtained bogus purchase bills from parties listed as hawala operators. The assessee provided explanations and documents to prove the genuineness of the purchases, but the AO considered the purchases as bogus due to lack of further evidence like delivery notes and stock registers.

3. The CIT(A) observed that the assessee failed to prove the existence of suppliers and transactions were found to be bogus. The CIT(A) directed the AO to estimate the profit element embedded in the purchases, citing judicial precedents for estimating net profit ranging from 12.5% to 25% depending on the nature of the business.

4. The revenue appealed, arguing that the profit should be estimated at 15% on the total alleged bogus purchases. However, the Tribunal noted that the AO failed to conduct an independent inquiry and accepted the possibility of purchases from the open market. The Tribunal directed the AO to estimate net profit at 20% on the alleged bogus purchases.

5. The Tribunal differentiated the present case from the decision relied upon by the revenue, emphasizing that the assessee had provided evidence to prove the purchases. Therefore, the Tribunal concluded that a 20% net profit estimation was appropriate based on the circumstances of the case.

6. Both appeals filed by the revenue were partly allowed, and the net profit on alleged bogus purchases was estimated at 20% for each assessment year. The Tribunal pronounced the order on June 30, 2017.

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