Tribunal allows partial appeal on bogus purchases, disallows 25% for lack of evidence.

The Tribunal partially allowed the assessee's appeals concerning deemed bogus purchases for AY 2010-11 and 2011-12. While acknowledging the purchases were from bogus entities, it estimated profit by disallowing 25% of the purchases. The Tribunal emphasized the lack of evidence provided by the assessee to substantiate the purchases but recognized the likely use of materials in projects. The decision aligned with precedents restricting disallowance to a percentage of inflated purchases to balance justice and protect Revenue interests. The orders were pronounced on 21/08/2017.

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Issues Involved:
1. Bogus Purchases
2. Estimation of Profit
3. Evidence and Documentation

Detailed Analysis:

1. Bogus Purchases:
The assessee challenged the orders for AY 2010-11 and 2011-12, where purchases amounting to Rs. 49,19,900 and Rs. 12,28,090 respectively were deemed bogus. The assessee argued that as a civil contractor, the goods purchased were essential for project completion. The Revenue defended the addition, citing the lack of evidence for the consumption of purchased materials.

The tribunal examined various precedents, including the Hon'ble Gujarat High Court's decision in *Sanjay Oilcakes Industries vs CIT* (2009) and *CIT vs Bholanath Poly Fab. Pvt. Ltd.* (2013), which upheld the disallowance of a portion of purchases when sellers were untraceable and purchases were inflated. The Tribunal also referenced *CIT vs Vijay M. Mistry Construction Ltd.* (2013), which similarly restricted disallowance to a percentage of inflated purchases.

2. Estimation of Profit:
The Tribunal noted that in cases where purchases are deemed bogus, an element of guesswork is inevitable. The Hon'ble Apex Court in *Kachwala Gems vs JCIT* (2007) endorsed this view. The Tribunal cited the Hon'ble Gujarat High Court's decision in *CIT vs Bhola Nath Poly Fab. (P.) Ltd.* (2013), which held that the profit margin embedded in such purchases should be taxed, not the entire purchase amount.

In the present case, the Tribunal agreed with the Revenue's assertion that the purchases were from bogus entities but acknowledged that the materials were likely used in the projects. Therefore, they decided to estimate the profit by disallowing 25% of the bogus purchases, aligning with the precedent set by *Simit P. Seth* (2013) and other similar cases.

3. Evidence and Documentation:
The Tribunal emphasized the importance of evidence in substantiating purchases. The assessee failed to provide delivery challans or other necessary documents. The Tribunal referenced the Hon'ble Bombay High Court's decision in *CIT vs Nikunj Exim Enterprises Pvt. Ltd.* (2015), which upheld genuine purchases based on stock statements, invoices, and bank statements, even when suppliers did not appear before the authorities.

However, in the present case, the Tribunal found that the assessee did not produce sufficient evidence to prove the genuineness of the purchases. The Tribunal also considered the Hon'ble Gujarat High Court's decision in *N.K. Industries Ltd. vs DCIT* (2016), where the entire income from bogus purchases was added due to the lack of evidence.

Conclusion:
The Tribunal concluded that while the purchases were from bogus entities, the materials were likely used in the assessee's projects. Therefore, they restricted the disallowance to 25% of the bogus purchases to meet the ends of justice and safeguard the Revenue's interest. Both appeals of the assessee were partly allowed.

Order Pronouncement:
The order was pronounced in the presence of representatives from both sides on 21/08/2017.

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