TaxTMI 
TaxTMI 
2017 (5) TMI 1211
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....ment, AO found that assessee had made purchases from the bogus suppliers amounting to Rs. 70,23,639/-. The AO asked the assessee to produce these parties, however, the assessee failed to do so. It was also claimed that from the MVAT angle, there could be a case of non-filing of return or non-payment of MVAT taxes by the suppliers and in such scenario applying provisions of Section 48(5) of the MVAT Act, 2002, the assessee's input tax credit on the supplies cannot be allowed. This does not go on to prove that these parties were bogus suppliers. However, the AO did not agree with assessee's contention and added entire purchases in asessee's income. 4. By the impugned order, CIT(A) restricted the addition to the extent of 12.5% of such purc....
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....d a good prima facie reason to suspect the genuineness of purchases, he stopped short of establishing sufficiently that these purchases, were actually bogus. He has disbelieved the purchases only because the names of the parties appeared on the list of hawala operator and the assessee failed to produce him during assessment proceedings. The proof for payment made by the assessee to these parties through account payee cheque, which is duly debited in the books of account, has not been rebutted by the AO. The AO has not brought anything on record to indicate that the payments made for purchases have been received back by the assessee. It is common knowledge that some assessees make purchases from unregistered dealers who do not issue bills as....
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.... such purchases were made from bogus parties. The Tribunal noted that the A.O had issued notice to all parties from whom such purchases were allegedly made. Such notices were returned unserved by the postal authorities with the remark that address was incomplete. The Inspector deputed by the LT. Department also could not find any of the parties available at the given addresses. The assessee was unable to produce any confirmation from any of the parties. Though the assessee had claimed to have made payments by account payee cheques, upon verification it was found that the cheques were encashed by some other parties and not by the supposed sellers. Having come to such conclusion, however, the Tribunal was of the opinion that the purchases may....
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....d goods. In that view of the matter, as natural corollary, not the entire amount covered under such purchase, but the. profit element embedded therein would be subject to tax. This was the view of this court in the case of San jay Oilcake Inds. Vs. CIT (2009) 316ITR 274 (Guj). Such decision is also followed by this court in a judgment dated August, 16, 2011 in Tax Appeal No. 679 of 2010 in the case of CIT Vs. Kishor Amrutlal Patel. In the result tax appeal is dismissed." 6.6 In the case of Vijay Proteins Ltd. 58 ITD 428, Hon'ble ITAT Ahmedabad 'C' Bench, under similar circumstances, where the A.O had disallowed the entire expenditure on account of purchases made from certain parties treating the same as bogus, has held that "....
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....nted for goods. 6.7 In the case of Mls Sanjay Oilcake Industries V. Commissioner of lncome Tax reported in 316 ITR 274 (Guj), the Hon'ble court had upheld the action of the CIT(A) and ITAT in determining estimated "addition of25% of the purchases in cases involving bogus purchase. Very recently in the case of Commissioner of Income Tax v. Simit P. Sheth 356 ITR 451 (Guj), the Hon'ble High Court has given a finding that estimation of rate of profit must necessarily vary with the nature of business and no uniform yardstick could be adopted and finally confirmed the action of the ITAT in determining 12.5% of the bogus purchases as the profit embedded in such transactions. 6.8 The same ratio also has been applied by the Bombay Hig....
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....ce of the suppliers or of supply of goods by those vendors. The suppliers were found to be engaged in providing bogus bills without actual delivery of goods. On careful analysis of the decisions of Hon'ble High Court of Gujarat and ITAT in the above mentioned cases, I am also of the view that without purchase of material it is not possible to complete the contract work of road widening done by the assessee. As mentioned above, the AO had never disputed or examined the sales. Once sales are accepted, corresponding purchases have to be considered and cannot be disregarded in totality. Looking to the market trend, the appellant may have made cash purchases from other parties which were not recorded in the books, and took only bills from th....