2018 (4) TMI 690 - AT - Income Tax

Tribunal adjusts profit ratios in appeals, limits disallowance percentages for two assessment years.

The Tribunal partly allowed the appeals, directing the AO to estimate the profit element in alleged bogus purchases at adjusted GP ratios, while ... G.P. estimation on bogus purchases - Held that:- End of justice will be met in this case, if GP ratio of 10% on alleged bogus purchase is added to income of the assessee against which credit for the declared GP ratio will be granted by AO. In a nutshell, the AO is directed to restrict the disallowance of alleged purchase of ₹ 7,16,98,624/- by estimating the same at 3.7% (10% minus 6.30%) for the AY 2006-07. Facts being identical our decision for the AY 2006-07 applies mutatis mutandis to AY 2007-08. Accordingly, the AO would estimate the profit element embedded in the purchase of ₹ 22,11,65,706/- @ 3.37% (10% minus 6.63%) for A.Y.2007-08. We make it clear that we are not disturbing the additional income of ₹ 45,17,013/- offered by the assessee for A.Y. 2006-07 and ₹ 1,46,63,286/- for A.Y. 2007-08. Issues Involved:1. Reopening of assessment under Section 147.2. Addition of undisclosed income due to bogus purchases.3. Declaration of additional income and its impact on the gross profit.Detailed Analysis:1. Reopening of Assessment under Section 147:The first ground of appeal concerns the reopening of assessment under Section 147 by the Assessing Officer (AO). The assessee's counsel submitted a written statement on 18.01.2017, indicating that this ground of appeal is not pressed. Consequently, the first ground of appeal was dismissed as not pressed.2. Addition of Undisclosed Income due to Bogus Purchases:The second and third grounds of appeal deal with the addition of Rs. 7,16,98,624/- and Rs. 45,17,013/- as undisclosed income from bogus purchases and additional income declared by a partner, respectively. The AO completed the assessment under Section 143(3) on 30.09.2009, assessing the income at Rs. 18,98,59,230/-. A survey under Section 133A revealed that certain entities provided accommodation entries through bogus purchase/sale bills. The assessee was identified as a beneficiary of such accommodation bills.During reassessment, the AO relied on an affidavit dated 07.02.2009 by Shri Anil B. Vanani, a partner of the assessee firm, who admitted to purchases from entities providing bogus bills. The AO added both the additional income of Rs. 45,17,013/- and the total purchases of Rs. 7,16,98,624/- as undisclosed income.3. Declaration of Additional Income and its Impact on Gross Profit:The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who directed the AO to allow cross-examination of Shri Gautam Jain, a key witness. The CIT(A) observed that the additional income declaration was voluntary and aimed at avoiding prosecution. The CIT(A) upheld the AO's decision to tax both the bogus purchases and the profit element, rejecting the assessee's claim of duress.Before the Tribunal, the assessee's counsel argued that the purchases were genuine and supported by stock registers and export records. The counsel highlighted that Shri Gautam Jain retracted his initial statement and that the cross-examination confirmed the genuineness of transactions. The counsel also noted that identical additions for AY 2009-10 were deleted by the CIT(A).The Tribunal reviewed the evidence, including the statements and affidavits of Shri Gautam Jain and Shri Anil B. Vanani. The Tribunal concluded that justice would be served by adding a gross profit (GP) ratio of 10% on the alleged bogus purchases, with credit for the declared GP ratio. Thus, the AO was directed to restrict the disallowance to 3.7% (10% minus 6.30%) for AY 2006-07 and 3.37% (10% minus 6.63%) for AY 2007-08. The additional income of Rs. 45,17,013/- for AY 2006-07 and Rs. 1,46,63,286/- for AY 2007-08 declared by the assessee was not disturbed.Conclusion:The appeals were partly allowed, with the Tribunal directing the AO to estimate the profit element embedded in the alleged bogus purchases at adjusted GP ratios, while maintaining the additional income declared by the assessee. The order was pronounced in the open court on 19/03/2018.