Tribunal affirms assessments, rejects cash payment claim, adds profit at 3%.

The Tribunal upheld the validity of assessments under section 143(3) read with section 147 for multiple assessment years. The purchases were not entirely treated as bogus; only the profit element embedded in disputed transactions was added to income at a rate of 3%. The Tribunal dismissed Revenue's argument under section 40A(3) regarding cash payments, as payments were made through cheques. All appeals were dismissed, affirming the assessments and profit additions while rejecting the application of section 40A(3).

---

---

Issues Involved:
1. Validity of assessments under section 143(3) read with section 147.
2. Treatment of purchases as bogus and the resultant additions to income.
3. Estimation of profit element embedded in disputed purchases.
4. Applicability of section 40A(3) regarding cash payments.

Issue-wise Detailed Analysis:

1. Validity of Assessments under Section 143(3) read with Section 147:
The assessee challenged the validity of the assessments made by the Assessing Officer (AO) under section 143(3) read with section 147 of the Income Tax Act for the assessment years (A.Y.) 2011-12, 2012-13, 2013-14, and 2014-15. The Ld. CIT(A) upheld the validity of these assessments, rejecting the preliminary issue raised by the assessee. The Tribunal did not find any merit in the assessee's contention challenging the validity of the assessments.

2. Treatment of Purchases as Bogus and Resultant Additions:
The AO treated the entire purchases made by the assessee from the entities of Shri Sanjiw Kumar Singh as bogus, based on the survey and search findings, and added the amounts to the total income of the assessee for the four years under consideration. The assessee's attempt to establish the genuineness of the purchases was unsuccessful as they could not furnish transportation details or produce relevant documents like bilties and challans.

3. Estimation of Profit Element Embedded in Disputed Purchases:
The Ld. CIT(A) found that while the entire amount of alleged bogus purchases could not be added as income, only the profit element embedded in the disputed transactions should be considered for addition. The CIT(A) estimated this profit element at 3% of the disputed purchases, based on judicial precedents like CIT vs Simit P Sheth and CIT vs M/s. Mohommad Haji Adam & Co. The Tribunal upheld this estimation, finding it fair and reasonable, given the average gross profit (GP) rates declared by the assessee in subsequent years.

4. Applicability of Section 40A(3) Regarding Cash Payments:
The Revenue argued that since the purchases were made from the grey market, payments must have been made in cash, attracting the provisions of section 40A(3). However, the Tribunal accepted the assessee's contention that there was no evidence to show that the purchases were made in cash. The payments were made by cheques, as established by the bank statements. Therefore, the Tribunal found no merit in invoking section 40A(3) and dismissed the appeals of the Revenue.

Conclusion:
The Tribunal dismissed all four appeals of the assessee and both appeals of the Revenue. The assessments under section 143(3) read with section 147 were upheld. The treatment of the entire purchases as bogus was not accepted, and only the profit element at 3% of the disputed purchases was added to the income. The applicability of section 40A(3) was rejected due to lack of evidence of cash payments. The order was pronounced in the open court on 22nd October 2020.

---