2020 (7) TMI 462 - AT - Income Tax

Tribunal reduces additions for alleged bogus purchases, deems interest and penalty issues consequential. COVID-19 delay acknowledged.

Shri Ilesh Amrutlal Gadhia Versus DCIT-Central Circle-4 (2), Mumbai

The Tribunal dismissed the revenue's appeals and partly allowed the assessee's appeals by directing the Ld. AO to estimate the additions at 1% on a net ... Bogus purchases - GP estimation - HELD THAT:- It would make it a fit case to make estimated additions to account for profit element embedded in these suspicious / unverified purchases to factorize for profit earned by assessee against possible purchase of material in the grey / unorganized market and undue benefit of VAT against such bogus purchases, which CIT(A) has rightly done so - assessee was dealing in low-margin commodity like iron & steel which attracts lower VAT rate, the estimation of 12.5% with set-off of already declared GP was on higher side. The coordinate bench in the cited decision of assessee’s son, found merits in the contentions of the assessee and observed that the assessee took all possible steps and produced relevant documents to prove the genuineness of the purchases made from M/s RTIPL. The evidences furnished by AO were not disproved by AO and therefore, the view taken by Ld. AO was not based on any material. In the said background, the bench directed Ld.AO to restrict the estimation to 0.11% on purchases made from M/s RTIPL. This rate was nothing but the GP rate earned by the assessee on other purchases. Drawing analogy from the same & keeping in view the GP rates reflected by assessee in preceding as well as in succeeding years, we direct Ld. AO to estimate the additions against suspicious / unverified purchases @1% on net basis, without any other benefit. The additions would come to ₹ 3,81,027/-. The balance additions would stand deleted. Accordingly, the revenue’s appeal stands dismissed whereas the assessee’s appeal stands partly allowed. Issues Involved:1. Estimated additions on account of alleged bogus purchases.2. Levying interest under Section 234B of the Income Tax Act.3. Initiation of penalty under Section 271(1)(c) of the Income Tax Act.Issue-wise Detailed Analysis:1. Estimated Additions on Account of Alleged Bogus Purchases:The core issue in the cross-appeals for AY 2009-10 and AY 2010-11 revolves around the estimated additions due to alleged bogus purchases from M/s Ragini Trading & Investments Private Limited (RTIPL). The assessee, engaged in trading steel and metal items, was accused of inflating expenses by booking bogus purchases. The assessment stemmed from a search and seizure action revealing that the Ushdev group, including the assessee, obtained accommodation entries from various entities. The primary argument from the assessee was the one-to-one correlation between purchases and corresponding sales, with payments made through banking channels. However, the assessee failed to prove the dispatch, transportation, and delivery of goods. The Ld. AO concluded that the purchases were non-genuine and added the entire amount to the income of the assessee.Upon appeal, the Ld. CIT(A) noted the business model and found that the entire purchases could not be added to the income, but only the profit element embedded in the transactions. Following judicial precedents, the Ld. CIT(A) estimated the additions at 12.5% of the bogus purchases, allowing set-off of the Gross Profit (GP) already shown by the assessee. The Tribunal, considering the low-margin nature of the business and the GP rates in preceding and succeeding years, directed the Ld. AO to estimate the additions at 1% on net basis, without any other benefit. This resulted in a net addition of Rs. 3,81,027 for AY 2009-10.For AY 2010-11, the facts were similar, and the Tribunal applied the same findings, resulting in net additions at 1% of the suspicious/unverified purchases from M/s RTIPL.2. Levying Interest under Section 234B of the Income Tax Act:The assessee raised a ground against the levy of interest under Section 234B of the Act. However, the Tribunal noted that this issue was mandatory and consequential in nature and did not require specific adjudication.3. Initiation of Penalty under Section 271(1)(c) of the Income Tax Act:The assessee also contested the initiation of penalty under Section 271(1)(c). The Ld. CIT(A) held that this ground was premature. The Tribunal did not provide a specific adjudication on this matter, considering it mandatory and consequential.Conclusion:The Tribunal dismissed the revenue’s appeals and partly allowed the assessee’s appeals by directing the Ld. AO to estimate the additions at 1% on net basis for the alleged bogus purchases, resulting in reduced additions for both AY 2009-10 and AY 2010-11. The issues of interest under Section 234B and penalty under Section 271(1)(c) were deemed consequential and did not require specific adjudication. The delay in pronouncement of the order was attributed to the unprecedented circumstances caused by the COVID-19 pandemic, which was acknowledged and justified by the Tribunal.