2018 (12) TMI 974 - AT - Income Tax

Addition of profit rate at the rate of 12.5% of the bogus purchases - purchases from grey market - Held that - Revenue has not doubted the sales carried out of the bogus purchases by the assessee. The assessee also maintain stock tally payments are made by cheque. But the assessee could not produce delivery challans lorry receipts transportation details etc. during the course of assessment proceedings and even now before us. These parties i.e. the seller parties have admitted that they have not made any sale or purchase transaction and in that eventuality only inference can be drawn is that the assessee might have made purchases from grey market and made sales. In this entire process the assessee might have save the VAT payment and made purchases at a lower rate from grey market. Hence assessee might have earned higher profit. Accordingly now the only alternative left with the AO is application of profit rate. The AO has estimated the profit rate @ 12.5% which is confirmed by the CIT(A) relying on the decision of Hon ble Gujarat High Court in the case of Simit P. Sheth 2013 (10) TMI 1028 - GUJARAT HIGH COURT and Bholenath Poly Fab P. Ltd. 2013 (10) TMI 933 - GUJARAT HIGH COURT . I find from the facts of the case that the lower authorities have rightly estimated the profit rate @ 12.5% & which is quite reasonable. - Decided against assessee.

Summary

Issues:
- Addition of profit rate at the rate of 12.5% of the bogus purchases confirmed by CIT(A).
- Failure to produce supporting documents for purchases from alleged parties.
- Discrepancy in parties admitting no sale or purchase transactions.
- Application of profit rate by AO and confirmation by CIT(A).
- Absence of the appellant during the Tribunal hearing.

Analysis:

1. Addition of Profit Rate: The primary issue in this case pertains to the addition of profit rate at 12.5% of the alleged bogus purchases, as confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)]. The Assessing Officer (AO) estimated this profit rate due to the lack of supporting documents and the admission by seller parties that no transactions took place. The CIT(A) upheld this addition, citing precedents and justifying the estimation of profit rate.

2. Failure to Produce Supporting Documents: The appellant failed to provide essential documents such as delivery challans, lorry receipts, and transportation details during the assessment proceedings. This failure to produce crucial evidence raised doubts about the genuineness of the purchases claimed from the alleged parties, leading to the AO's decision to estimate the profit rate.

3. Discrepancy in Parties' Transactions: The parties from whom the appellant claimed to have made purchases admitted to not engaging in any sale or purchase transactions. This admission, coupled with the absence of supporting documents, cast suspicion on the authenticity of the transactions, prompting the AO to infer purchases from the grey market at lower prices.

4. Application of Profit Rate: The AO's application of a 12.5% profit rate on the alleged bogus purchases was based on the assumption that the appellant might have saved on VAT payments by purchasing from the grey market at lower rates. The CIT(A) supported this estimation, drawing parallels with relevant legal precedents and justifying the profit rate applied.

5. Appellant's Absence at Tribunal Hearing: Despite being served notice, the appellant did not appear at the Tribunal hearing. The Tribunal proceeded with the case in the absence of the appellant, considering it a small and straightforward matter. The decision was made after hearing only the learned Department representative.

In conclusion, the Tribunal dismissed the appeal of the appellant, upholding the addition of profit rate at 12.5% on the alleged bogus purchases. The decision was based on the failure to produce essential documents, discrepancies in parties' transactions, and the reasonable estimation of profit rate by the lower authorities, supported by legal precedents.