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of <h1>Estimation of income from bogus purchases: addition under unexplained investment restricted to 8.87% of gross profit, appeal dismissed</h1> Estimation of income from alleged bogus purchases was challenged where the assessing officer discarded the assessee's supporting documents without reasons ... Estimation of income - bogus purchases to the extent of 8.87% of the gross profit (GP) - assessee company had filed its return u/s. 139 of the Act offering an income which return was reopened u/s. 147 of the Act based on the information from the Investigation Wing, (Kolkata) that M/s.Barbrik had indulged in providing fraudulent invoices for facilitating accommodation entry for entities [like assessee] - HELD THAT:- AO is found to have discarded the relevant documents filed by the assessee [to prove the genuineness of the transaction] without assigning any reason can’t stand the scrutiny of law. Secondly, the AO is noted to have disbelieved the relevant documents filed by the assessee only on the basis of information, he received from the Investigation Wing which piece of evidence has not been confronted with the assessee. So the AO’s reliance on any adverse material without furnishing a copy of the same to assessee strikes at the root of the addition made by the AO. As brought to our notice that there is no proof that the said company/accommodation entry provider/M/s.Barbrik has been “struck-off” from the rolls of MCA in the relevant AY 2018-19, but the only proof is that GST registration of M/s.Barbrik has been cancelled w.e.f. 13.05.2019 [i.e. AY 2020-21] which means impliedly that M/s.Barbrik was enjoying GST registration in the relevant year i.e. AY 2018-19, and it was not struck off in the relevant year. Therefore, the basis for making addition u/s. 69C is arbitrary, which can’t stand the scrutiny of law and therefore, the addition made by AO is untenable and therefore, the AO erred in making the addition u/s. 69C of the Act; and since the assessee is not in appeal against the action of the Ld.CIT(A), we uphold the action of the Ld.CIT(A) restricting the addition to Gross-Profit @ 8.87% and dismiss the Revenue Appeal. Issues: Whether the Assessing Officer was justified in disallowing the entire purchase consideration of Rs.1,20,99,998/- as unexplained expenditure under Section 69C of the Income-tax Act, 1961, or whether the restriction of the addition by the Commissioner of Income Tax (Appeals) to the profit element @8.87% of gross profit is sustainable.Analysis: The issue turns on (i) whether the AO could reject the transactions as bogus despite the assessee filing purchase registers, bank payment proofs, sales invoices, GST returns and ledger entries, and (ii) whether reliance on information from the Investigation Wing and alleged striking off of the supplier without confronting the assessee or producing that material justified addition of the entire purchase amount. The AO reopened assessment under Section 147/148 and made an addition under Section 69C based on investigation information, but did not rebut or confront the assessee's documentary evidence nor produce the adverse material to the assessee. The CIT(A) restricted the addition to the profit element on the view that sales were accepted and the profit portion only ought to be added; the Tribunal examined applicability of that approach to the facts and whether the AO's summary rejection of documents and reliance on uncommunicated investigation material was tenable.Conclusion: The AO's disallowance of the entire purchase consideration is untenable because the assessee produced corroborative documentary evidence and the AO relied on investigation material that was not confronted or furnished to the assessee; therefore the restriction of the addition by the CIT(A) to the profit element @8.87% amounting to Rs.10,73,269/- is upheld and the Revenue's appeal is dismissed.Ratio Decidendi: Where an assessee produces contemporaneous books, bank payment evidence and statutory returns, an AO cannot disallow entire claimed purchases under Section 69C solely on the basis of investigation information not confronted or furnished to the assessee; at most the profit element may be added if sales are accepted and purchases are otherwise unprovable.
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