2023 (11) TMI 283 - AT - Income Tax

Gross profit estimated at 12.5% on alleged bogus purchases upheld despite supplier address discrepancies

ITAT Ahmedabad upheld CIT(A)'s decision estimating gross profit at 12.5% on alleged bogus purchases. The assessee provided different addresses for ... Estimation of income - bogus purchases - estimation of gross profit at 12.5% by CIT(A) - HELD THAT:- It is seen from the assessment order that the assessee after providing different addresses in invoices and ITR’s in the case of M/s. Prince Sales Corporation and M/s. Perfect Steel Corporation. Though the assessee requested to issue notices u/s. 133(6) to the additional two addresses, however the A.O. has not issued summons to the parties. Even in case the sellers who failed to furnish reply to the notices issued by the AO, that cannot be a ground to hold that the genuine purchases made by the assessee from them to be treated as bogus purchases. It is seen from the appellate order, the Ld. CIT(A) has correctly considered the above issue in detail and then following judgments of Jurisdictional High Court and Tribunal made an average disallowance of 12.5% on the alleged bogus purchases made by the assessee. This conclusion arrived by the Ld. CIT(A) in our considered view is found to be reasonable, since the average Gross Profit for the three years comes to 10.77%. CIT(A) has exhaustively discussed the matter and decided the appeal on the basis of finding of the Gujarat High Court in the case of CIT Vs. Simit Sheth (2013 (10) TMI 1028 - GUJARAT HIGH COURT) and other case laws. No distinguishable material has been produced before us by the Revenue, thus the factual position remains the same. Thus we are of the considered view that the Ld. CIT(A) has passed the order judiciously and correctly which does not require any interference and the estimation of gross profit at 12.5% is hereby confirmed. Issues Involved:1. Reopening of assessment under section 147 of the Income Tax Act.2. Addition in respect of purchases held to be bogus.3. Confirmation of addition/disallowance of bogus purchases to the extent of profit at 12.5%.Summary:Issue 1: Reopening of AssessmentThe Assessee did not press the ground regarding the reopening of assessment under section 147 of the Income Tax Act.Issue 2: Addition in Respect of Bogus PurchasesThe Assessing Officer (A.O.) disallowed the entire purchase amount of Rs. 2,82,87,252/- as bogus, treating it as the income of the assessee. This decision was based on the lack of proper response from suppliers to summons issued under section 133(6) and the A.O.'s conclusion that the purchases were merely accommodation entries. The assessee provided various details to support the purchases, including addresses, phone numbers, PAN, VAT numbers, and bank account details, but the A.O. did not cross-verify these details.Issue 3: Confirmation of Addition/Disallowance of Bogus PurchasesThe Commissioner of Income Tax (Appeals) [CIT(A)] partly allowed the assessee's appeal by estimating a disallowance of 12.5% of the alleged bogus purchases. The CIT(A) reasoned that while the purchases from certain parties could not be fully established as genuine, the sales were not in doubt, and some element of unverifiable purchases could not be ruled out. The CIT(A) relied on various judgments, including those of the Gujarat High Court, which held that when sales are not in doubt, the entire purchases cannot be disallowed, but rather the profit element embedded in such purchases could be disallowed.Appeals by Assessee and Revenue:Both the Assessee and Revenue filed cross appeals. The Assessee contested the 12.5% disallowance, arguing that the Gross Profit (G.P.) declared on work-in-progress and sales in respective assessment years was fair and reasonable. The Revenue argued that the entire amount of bogus purchases should be added back to the income.Tribunal's Decision:The Tribunal upheld the CIT(A)'s decision, confirming the disallowance of 12.5% of the alleged bogus purchases. The Tribunal found the CIT(A)'s conclusion reasonable, noting that the average Gross Profit for the three years was 10.77%. The Tribunal also considered various case laws supporting the view that only the profit element in such purchases should be added to the income, not the entire purchase amount. The Tribunal dismissed both the Assessee's and Revenue's appeals.Conclusion:The Tribunal confirmed the CIT(A)'s estimation of gross profit at 12.5% on the alleged bogus purchases, dismissing the cross-appeals filed by both the Assessee and Revenue for the assessment years 2015-16 to 2017-18. The order was pronounced in the open court on 31-10-2023.