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2017 (6) TMI 1343 - ITAT MUMBAIBogus purchases - applying peak credit theory - AO received specific information from the Director General of Income Tax, Mumbai that the Sales Tax Department, Government of Maharashtra has found that the assessee is involved in taking accommodation entries of bogus purchases - HELD THAT:- It is settled legal position that once the assessee has filed all the necessary details before the AO , it is for the AO to disprove the evidences submitted by the assessee and point out further defects in the books of account before making addition on account of bogus purchases. In the instant case before us, the whole conclusion has been drawn by the revenue authorities merely on conjectures, surmises and presumption that the assessee might have taken the hawala entries from the hawala operators and the cash so generated was used for making purchases from the gray market. No concrete findings with the necessary evidences were given by the revenue authorities for making the addition/enhancement. We are not in agreement with the conclusion drawn by the FAA that the addition as made by the AO u/s 69C was correct with the further enhancement by the ld.CIT(A). Accordingly, we set aside the order of the ld.CIT(A) on this issue and direct the AO to delete the additions. GP estimation - AO observed that the GP of the assessee in the current year was 6.02% as compared to 6.36% in the immediate preceding year - AO was not convinced with the contention of the assessee that the fall in GP is due to overall market conditions and also that the sales of the assessee increased to ₹ 6,30,62,994/- as compared to ₹ 6,09,13,726/-/- in the immediate preceding year and made addition at the rate of 0.5% - HELD THAT:- CIT(A) acted primarily on the conjecture, surmises and presumptions by coming to the conclusion the assessee saved taxes from 4 to 12% by purchasing goods from gray markets and accordingly, enhanced the addition by 4% of the tainted purchases of ₹ 2,73,65,128/-. CIT(A) has not given any concrete basis but generalised that 4 to 12% were generally saved when the purchases were made from gray market. It is pertinent to note the fact that the assessee has also paid amount of sales tax which the so called hawala operators should have paid who provided accommodation entries to the assessee as the assessee was forced to pay the sales tax by VAT authorities. The enhancement of income is unreasonable and uncalled for in view of the facts and discussion made hereinabove. We do not find any justification or reasons for enhancement by applying GP of 4% on the bogus purchase of ₹ 2,73,65,128/- as against 0.50% by the AO. We do agree with the ld.CIT(A) on the issue of confirming the GP addition in order to equalize the GP on tainted amount of purchases which is made at the rate of 0.50% on bogus purchases which comes to ₹ 1,36,825/-/- - Decided partly in favour of assessee.
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