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 suppliers in invoices and ITRs. AO failed to issue summons to additional addresses despite assessee's request and non-response from sellers cannot establish purchases as bogus. CIT(A) correctly analyzed the matter following Gujarat HC precedent in CIT vs. Simit Sheth, making reasonable 12.5% disallowance against average gross profit of 10.77% over three years. Revenue failed to produce distinguishable material, confirming CIT(A)'s judicious order.

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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 Assessment
The 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 Purchases
The 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 Purchases
The 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.

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