2020 (11) TMI 477 - AT - Income Tax

ITAT Mumbai: Ruling on Alleged Bogus Purchases & Expenditures for AY 2011-12

ITO-19 (2) (3), Mumbai Versus Mr. Mithalal Bhavarlal Jain, Pro. M/s. Aristo Pipe & Fittings (Vice-Versa)

The Appellate Tribunal ITAT Mumbai, in a case concerning alleged bogus purchases and unexplained expenditures for the assessment year 2011-12, addressed ... Estimation of income - bogus purchases - HELD THAT:- Considering the nature of business of the assessee the Ld. AO has made peak amount invested in alleged bogus purchases, whereas the Ld.CIT(A) has scaled down addition to 12.50% gross profit on total alleged bogus purchase. Although, both authorities have taken different method and rate of profit for estimation of income from alleged bogus purchase, but no one could support said rate of gross profit with necessary evidences or any comparable cases. In this case, the assessee is into the business of trading in ferrous and nonferrous metals and the rate of profit in this kind of business is very low. Considering facts and circumstances of this case and consistent with view taken by the Co-ordinate Bench in number of cases, we are of the considered view that 12.50% gross profit rate adopted by the ld. CIT(A) appears to be on higer side and hence, we direct the ld. AO to estimate 6% gross profit on alleged total bogus purchases from those parties. - Decided partly in favour of assessee. Issues:1. Addition on account of bogus purchase2. Deletion of unexplained expenditure made on account of bogus purchase3. Confirmation of addition at a profit rate on total purchases4. Justification of not appreciating the investigation findings5. Allegations of purchases being bogus based on surmises6. Violation of natural justice in considering evidence for disallowance7. Reliance on Sales Tax Department investigation without independent verification8. Making additions based on statements without providing copies or cross-examination9. Failure to consider evidence submitted by the assessee10. Allocation of onus of producing party to the assessee11. Making additions without considering business margins12. Allegation of excessive addition without considering VAT ratesAnalysis:1. The judgment involves cross-appeals by the revenue and assessee against the Ld. Commissioner of Income tax (Appeals) order pertaining to the assessment year 2011-12. The revenue raised grounds questioning the confirmation of additions related to alleged bogus purchases and unexplained expenditures, while the assessee disputed the allegations of bogus purchases, violation of natural justice, and the profit rate applied on total purchases.2. The revenue contended that the Ld. CIT(A) did not confirm the addition based on a Supreme Court decision and limited the unexplained expenditure, which was questioned by the revenue. The Ld. CIT(A) justified the deletion of the addition and confirmed a profit rate on total purchases, leading to the appeals.3. The assessee argued that the purchases were genuine and supported by evidence, challenging the findings based on investigation without independent verification. The Ld. CIT(A) scaled down the addition towards alleged bogus purchases to a gross profit percentage, citing relevant case law.4. The judgment highlighted the failure of both parties to conclusively prove their cases with necessary evidence. The Ld. AO relied on information from the investigation wing and Sales Tax Department, while the assessee provided basic evidence but failed to satisfy the authorities. The Tribunal emphasized the need for proper verification and evidence in cases involving suspicious transactions.5. Considering the nature of the business and the low profit margins in trading ferrous and non-ferrous metals, the Tribunal directed the Ld. AO to estimate a lower gross profit rate on the alleged bogus purchases. The judgment balanced the views of the revenue and assessee, ultimately allowing the appeals in part.6. The judgment, pronounced on 03/08/2020 by the Appellate Tribunal ITAT Mumbai, provided a detailed analysis of the issues raised by both parties and concluded with a directive to estimate a revised gross profit rate on the alleged bogus purchases, addressing the concerns raised during the appeals process.