Tribunal confirms 12.5% addition on bogus purchases, rejects 100% disallowance, upholds profit estimation.

The Tribunal upheld the CIT (A)'s decision to restrict the addition to 12.5% of the bogus purchases, rejecting the AO's appeal for a 100% disallowance. The Tribunal also dismissed the assessee's appeal for further reduction, noting the failure to produce suppliers and agreeing to a 5% addition before the CIT (A). The Tribunal found no issue with estimating profit at 12.5% of bogus purchases for both AY 2009-10 and AY 2010-11, emphasizing the lack of substantiation for the transactions.

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Issues Involved:
1. Disallowance of 12.5% of total bogus purchase transactions instead of 100%.
2. Consideration of information from DIT(Inv.) and Sales Tax Department regarding bogus purchases.
3. Admission by hawala operators about non-sale of materials.
4. Assessee's inability to prove genuineness and creditworthiness of purchase transactions.
5. Onus on the assessee to justify the claim of expenses.
6. Application of the decision of the Hon'ble Apex Court in the case of NK Proteins Ltd. vs. DCIT.

Issue-wise Detailed Analysis:

1. Disallowance of 12.5% of Total Bogus Purchase Transactions Instead of 100%:
The learned Commissioner of Income Tax (Appeals) [CIT (A)] restricted the disallowance to 12.5% of the total bogus purchase transactions, amounting to Rs. 10,84,489, instead of the 100% disallowance made by the Assessing Officer (AO) for the Assessment Year (AY) 2009-10. The CIT (A) accepted the argument that only the profit embedded in non-genuine purchases should be added, based on judicial precedents such as Simit P Seth and Bholanath Plyfabs Pvt. Ltd., which taxed 12.5% as gross profit (GP) on alleged bogus purchases.

2. Consideration of Information from DIT(Inv.) and Sales Tax Department Regarding Bogus Purchases:
The AO made the addition based on information received from the Directorate of Income Tax (Investigation) and the Sales Tax Department, Maharashtra, which indicated that the assessee had made bogus purchases from dealers without actual supply of goods. Notices issued under section 133(6) of the Income Tax Act to the suppliers did not elicit any response, leading the AO to conclude that these parties were bogus.

3. Admission by Hawala Operators About Non-Sale of Materials:
The AO relied on statements from hawala operators who admitted on oath before the Sales Tax Authorities that they had not sold any material to anybody. This formed a basis for treating the purchases as bogus.

4. Assessee's Inability to Prove Genuineness and Creditworthiness of Purchase Transactions:
The assessee failed to produce the suppliers and could not provide sufficient evidence to prove the genuineness and creditworthiness of the purchase transactions. Despite submitting purchase bills, ledger accounts, and bank statements, the AO found these insufficient to establish the legitimacy of the transactions.

5. Onus on the Assessee to Justify the Claim of Expenses:
The CIT (A) noted that the onus to justify the claim of expenses is on the assessee, which it failed to discharge. The assessee's inability to produce the suppliers or provide adequate documentation led to the conclusion that the purchases were not genuine.

6. Application of the Decision of the Hon'ble Apex Court in the Case of NK Proteins Ltd. vs. DCIT:
The AO's decision to add 100% of the bogus purchases was challenged by the assessee, who cited the case of NK Proteins Ltd. vs. DCIT, where the Apex Court confirmed a 100% addition. However, the Tribunal found that the facts of the present case were distinguishable from NK Proteins Ltd., where substantial evidence, including blank signed cheques and vouchers, was found during search proceedings.

Judgment:
The Tribunal upheld the CIT (A)'s decision to restrict the addition to 12.5% of the bogus purchases, rejecting the AO's appeal for a 100% disallowance. The Tribunal also dismissed the assessee's appeal for further reduction, noting that the assessee had failed to produce the suppliers and had agreed to a 5% addition before the CIT (A). The Tribunal found no infirmity in estimating the profit at 12.5% of the bogus purchases, given the circumstances and the evidence presented.

Conclusion:
For both AY 2009-10 and AY 2010-11, the appeals of the AO and the assessee were dismissed, upholding the CIT (A)'s decision to add 12.5% of the bogus purchases as profit. The Tribunal emphasized that the assessee's failure to substantiate the genuineness of the transactions justified the partial disallowance. The order was pronounced in the open court on 25.03.2022.

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