Tribunal limits addition to 2% of alleged bogus purchases, citing higher declared profit

The tribunal allowed the assessee's appeal in part, restricting the addition to 2% of the alleged bogus purchases totaling Rs. 11.01 lakhs. The tribunal disagreed with the CIT(A)'s reliance on a specific case and considered the higher gross profit declared by the assessee on the alleged bogus purchases. The order was pronounced on 31/07/2018.

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Issues Involved:
1. Enhancement of disallowance by CIT(A) on alleged bogus purchases.
2. Validity of assessing officer's addition based on alleged bogus purchases.
3. Justification for the application of profit estimation on purchases.

Issue-wise Detailed Analysis:

1. Enhancement of Disallowance by CIT(A) on Alleged Bogus Purchases:
The assessee contended that the CIT(A) erred in enhancing the disallowance to Rs. 11,04,76,728/- by estimating gross profit at 12.5% on alleged bogus purchases, as opposed to the addition of Rs. 1,89,39,167/- made by the AO. The assessee argued that the alleged bogus purchases and corresponding sales were duly recorded in the books of account and reflected in the audited financial statements. The CIT(A) relied on the Gujarat High Court decision in Simit P Seth to enhance the income.

2. Validity of Assessing Officer's Addition Based on Alleged Bogus Purchases:
The department received information about bogus suppliers and conducted a survey under section 133A, which did not find adverse documents at the assessee's premises. The AO sent notices to defaulting suppliers, which were not served. Despite the assessee providing all purchase details, the AO was unsatisfied and added 1.83% of the entire purchases, amounting to Rs. 1,89,39,167/-. The assessee agreed to an addition of 0.10%-0.15% for peace of mind, but the AO made a higher addition. The CIT(A) further enhanced the income to 12.50% of the entire purchases.

3. Justification for the Application of Profit Estimation on Purchases:
The assessee argued that the facts in Simit P Seth were different, and the reliance on this case for estimating profit at 12.5% was unjustified. The assessee demonstrated that the GP on alleged bogus purchases was higher than on genuine purchases. The AO did not reject the books of accounts, and the quantitative statement of purchases and sales was undisputed. The tribunal found that the assessee declared higher GP on alleged bogus purchases and restricted the addition to 2% of the alleged bogus purchases amounting to Rs. 55.09 Crores, resulting in an addition of Rs. 11.01 lakhs.

Conclusion:
The tribunal concluded that the CIT(A)'s reliance on Simit P Seth was not justified given the different facts. The tribunal restricted the addition to 2% of the alleged bogus purchases, amounting to Rs. 11.01 lakhs, considering the higher GP declared by the assessee on these purchases. The appeal of the assessee was allowed in part, and the order was pronounced on 31/07/2018.

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