2023 (7) TMI 515 - HC - Income Tax

Bogus purchase claims for contract materials actually used: tax additions limited to profit element, 12.5% upheld

Whether additions for alleged bogus purchases should be made on the full purchase value or limited to the profit element was the dominant issue. The HC ... Estimation of income on Bogus purchases - scam was unearthed by the Sales Tax Department in respect of bogus parties who provided accommodation entries - ITAT confirmed the order of CIT(A) restricting the addition to 12.5% of the purchases - HELD THAT:- CIT(A) and the ITAT were correct in coming to the conclusion that the purchase cannot be rejected and the additions could be restricted to the extent of profit element, which they determined could be 12.5%. This is because when material has been actually purchased and consumed in executing the contract, the cost price is required to be deducted and taxes cannot be levied on the same. There is nothing to indicate whether the profit element should be more than 12.5%. No substantial question of law arises. Issues Involved:The judgment involves the following substantial questions of law:1. Whether the ITAT erred in not considering the order of the Supreme Court in a similar case of bogus purchases.2. Whether the ITAT ignored the decision of the High Court and the Supreme Court regarding bogus suppliers.3. Whether the ITAT overlooked the addition made by the AO based on details of a scam unearthed by the Sales Tax Department.4. Whether the ITAT erred in ignoring the purchases from bogus parties debited in the profit and loss account.5. Whether the ITAT erred in upholding the CIT(A)'s order limiting the disallowance without verification of quantitative data.Details of the Judgment:1. The Appellant challenged the ITAT's order regarding the respondent, a Civil Contractor, who filed a return of income for Assessment Year 2010-11.2. A scam involving bogus parties providing accommodation entries was unearthed by the Sales Tax Department.3. The Assessing Officer (AO) found purchases claimed as expenses to be not genuine and added them to the respondent's income.4. The AO treated Rs. 94,90,188/- as bogus purchases and added it to the total income.5. The CIT (A) allowed the appeal, restricting the addition to 12.5% of the purchases based on certain judgments.6. The ITAT upheld the CIT(A)'s order, leading to the current appeal.7. The Court considered the arguments and evidence presented by both parties.8. The respondent's engagement in genuine business activities with BMC was highlighted.9. The Court noted that the purchases themselves were not doubted, only the genuineness of the suppliers.10. It was found that the respondent maintained proper records and conducted transactions legitimately.11. The Court agreed with the CIT(A) and ITAT that the purchases were genuine and additions should be limited to the profit element.12. Consequently, the Court dismissed the appeal as no substantial question of law arose from the case.