Tribunal directs 1% addition for bogus purchases, rejects 12.5% profit, AY 2008-09

The Tribunal partially allowed the appeal, directing the assessing officer to add only 1% of the value of alleged bogus purchases, amounting to Rs. 5,67,019, and delete the remaining portion. The decision was based on the acknowledgment that fabrics do not attract VAT, contrary to the ld. AO's estimation of 12.5% profit. The Tribunal's order was pronounced on 08/10/2021 in ITA No.1783/Mum/2020 for A.Y.2008-09.

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Issues:
Determining the justification of confirming the addition made by estimating profit on alleged bogus purchases.

Analysis:
The appeal in ITA No.1783/Mum/2020 for A.Y.2008-09 questioned the validity of the ld. CIT(A) confirming the addition by estimating profit at 12.5% on purported bogus purchases. The assessee, a company engaged in trading fabrics, garments, and sunglasses, filed a return declaring total income of Rs. 16,33,487 for A.Y.2008-09. The assessment was reopened under section 147 of the Income Tax Act, 1961, due to observations made by the ld. AO regarding purchases from five parties amounting to Rs. 5,67,01,954.

The ld. AO noted deficiencies in documentary evidence related to the purchases and concluded that the suppliers were entry providers, leading to accommodation bills. Despite the submission of stock registers and sales records by the assessee, the ld. AO estimated a profit percentage of 12.5% due to the nature of the trading industry. This decision was upheld by the ld. CIT(A).

During the proceedings, the ld. AR argued that the suppliers only provided fabrics, which are not subject to VAT, and proposed estimating the profit element at 1% of the value of the alleged bogus purchases. In contrast, the ld. DR emphasized the non-production of suppliers and unserved notices under section 133(6), indicating the failure to prove the purchases' authenticity.

The Tribunal acknowledged the nature of the purchases and sales, confirming that fabrics do not attract VAT. Following a previous decision, the Tribunal directed the ld. AO to add only 1% of the value of the alleged bogus purchases, amounting to Rs. 5,67,019, and delete the remaining portion. Consequently, the appeal of the assessee was partly allowed, with the order pronounced on 08/10/2021.

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