Tribunal allows appeal in part, directs AO to estimate 5% profit on bogus purchases, adding to total income.

The Tribunal partly allowed the appeal, directing the AO to estimate an additional profit of 5% on alleged bogus purchases, adding Rs. 15,29,625 to the total income. Other grounds of appeal were rejected. The decision was pronounced on December 11, 2018, at Ahmedabad.

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Issues Involved:
1. Disallowance of Rs. 3,06,32,999/- as bogus purchases.
2. Disallowance of Rs. 21,566/- under section 14A r.w.r. 8D.
3. Disallowance of Rs. 2,19,474/- under section 36(1)(va) for late payment of employees' provident fund contributions.

Issue-wise Detailed Analysis:

1. Disallowance of Rs. 3,06,32,999/- as Bogus Purchases:
The main grievance of the assessee revolves around the disallowance of Rs. 3,06,32,999/- as bogus purchases. The assessee, engaged in manufacturing ferrous and non-ferrous metals, filed its return of income declaring a total income of Rs. 1,19,12,250/-. The case was selected for scrutiny, and the AO found that the Maharashtra Sales Tax Department had identified three parties (Parasnath Enterprises, Sendoz Steels, and Navkar Impex) involved in issuing bogus tax invoices without actual movement of goods. The AO confronted the assessee, who provided evidence of trading goods purchased and sold, earning a profit of Rs. 15,29,625/-. Despite this, the AO disallowed the purchases based on statements from the Maharashtra Sales Tax Department.

The assessee argued that the AO relied on statements and affidavits not provided to them, violating natural justice principles. They contended that the purchases were genuine, supported by payments made through cheques, and that the sales were not disputed. The assessee cited legal precedents to support their claim that disallowing the entire purchase amount was unjustified.

The Tribunal noted that the AO's reliance on statements recorded by the Maharashtra Sales Tax Department was questionable without providing the assessee an opportunity to cross-examine. However, the Tribunal found the evidence provided by the assessee insufficient to prove the genuineness of the purchases. The Tribunal concluded that while the purchases might be inflated, the corresponding sales were not disputed. Thus, instead of disallowing the entire purchase amount, the Tribunal directed the AO to estimate an additional profit of 5% on the alleged bogus purchases, adding Rs. 15,29,625/- to the total income of the assessee.

2. Disallowance of Rs. 21,566/- under Section 14A r.w.r. 8D:
The assessee did not press this ground of appeal, considering the smallness of the amount involved. Consequently, the Tribunal rejected this ground of appeal.

3. Disallowance of Rs. 2,19,474/- under Section 36(1)(va) for Late Payment of Employees' Provident Fund Contributions:
The Tribunal noted that this issue was covered against the assessee by the decision of the Hon’ble Gujarat High Court in the case of CIT Vs. Gujarat State Road Transport Corporation Ltd. The High Court held that if employees' PF contributions are not deposited within the time limit provided in the respective Acts, the deduction will not be admissible. Following this precedent, the Tribunal rejected this ground of appeal.

Conclusion:
The appeal of the assessee was partly allowed. The Tribunal directed the AO to estimate an additional profit of 5% on the alleged bogus purchases, adding Rs. 15,29,625/- to the total income. The other grounds of appeal were rejected. The order was pronounced in the Court on 11th December 2018 at Ahmedabad.

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