2020 (12) TMI 293 - AT - Income Tax

Bogus purchases - estimation of income - assessee had failed to substantiate the genuineness and veracity of the purchase transactions under consideration - CIT-A estimated a G.P rate of 12% as a yardstick in respect of the unverified purchases made by the assessee in his garden maintenance and development segment of business - HELD THAT - No infirmity either in confirming of the addition by the CIT(A) to the extent of the profit which the assessee would had made by procuring the goods from unverified parties nor the methodology adopted by him for quantification of such profit element. In fact we find no reason to take a view different from that arrived at by the Tribunal while disposing off the appeal in the assessee s own case for A.Y. 2010-11 2017 (8) TMI 1623 - ITAT MUMBAI As observed by us hereinabove the CIT(A) while disposing off the assessee s appeal for A.Y.2010-11 had after analyzing all the facts of the case had estimated a G.P rate of 12% in respect of the garden maintenance and development segment. The aforesaid order of the CIT(A) was thereafter upheld by the Tribunal. As in the case before us the assessee had already declared a G.P rate of 14.23% which is already more than the rate 12% as had been approved by the Tribunal in the assessee s own case for A.Y. 2010-11 we therefore finding no reason to take a different view respectfully follow the same. Accordingly finding no infirmity in the view taken by the CIT(A) we uphold his order. Appeal of the revenue is dismissed.

Summary

Issues involved:
1. Bogus purchases and their treatment under Section 69C of the Income Tax Act.
2. Onus on the assessee to prove the genuineness of purchases.
3. Estimation of profit on unverified purchases.
4. Methodology for quantifying profit from unverified purchases.

Issue-wise detailed analysis:

1. Bogus purchases and their treatment under Section 69C:
The assessee, engaged in trading and contracting for garden development and maintenance, filed returns for various assessment years. During a survey under Section 133A, it was discovered that the assessee had booked purchases from hawala dealers without actual delivery of goods. The Assessing Officer (A.O) confronted the assessee, who failed to provide satisfactory evidence, leading to the addition of the purchase amounts as unexplained expenditure under Section 69C. The CIT(A) observed that the A.O deemed the purchases bogus due to the parties being listed as suspicious dealers by the Sales Tax Department and the non-receipt of replies to notices issued under Section 133(6).

2. Onus on the assessee to prove the genuineness of purchases:
The A.O added the amounts of the impugned purchases to the assessee's income due to the failure to substantiate the genuineness of the transactions. The CIT(A) noted that the assessee provided ledger account confirmations, purchase orders, proof of payment by cheque, and work orders from the Municipal Corporation of Greater Mumbai (MCGM) certifying the use of the materials. Despite these submissions, the CIT(A) acknowledged that the assessee did not fully discharge the onus of proving the genuineness of the purchases.

3. Estimation of profit on unverified purchases:
The CIT(A) concluded that while the assessee failed to prove the genuineness of the purchases, the factum of consumption of such goods in executing the works contract was proven. Therefore, the possibility of inflated purchases could not be ruled out. The CIT(A) decided that the addition should be restricted to the estimated profit the assessee would have made by purchasing goods from unverified sources. This approach was consistent with previous Tribunal decisions in the assessee's own case and related parties.

4. Methodology for quantifying profit from unverified purchases:
The CIT(A) estimated the profit element by considering the gross profit (G.P) rate declared by the assessee. For instance, in A.Y. 2009-10, the CIT(A) noted that the assessee had declared a G.P rate of 14.23% for garden development and maintenance, which was higher than the 12% rate upheld by the Tribunal for A.Y. 2010-11. Consequently, no further addition was made. For other years, the CIT(A) followed a similar approach, estimating the G.P rate for different business segments and restricting the addition to the shortfall in the declared G.P rate. The Tribunal upheld these estimations, finding no infirmity in the CIT(A)'s methodology.

Separate Judgments:
For each assessment year (A.Y. 2009-10, A.Y. 2011-12, A.Y. 2012-13, and A.Y. 2013-14), the Tribunal delivered separate judgments, consistently dismissing the revenue's appeals and upholding the CIT(A)'s orders. The Tribunal agreed with the CIT(A)'s approach of restricting additions to the profit element and found the methodology for estimating the profit to be logical and fair.

Conclusion:
The Tribunal upheld the CIT(A)'s decisions to restrict additions to the estimated profit from unverified purchases, based on the gross profit rates declared by the assessee and upheld in previous Tribunal decisions. The revenue's appeals were dismissed for all assessment years.