2020 (12) TMI 1113 - AT - Income Tax

Estimation of income - Bogus purchases - CIT (A) has restricted the addition to 12.5% of the alleged bogus purchases - HELD THAT - The assessee could not establish the genuineness of the transaction to the satisfaction of the AO during assessment proceedings. From the facts of the case it can be concluded that assessee had made purchases from grey market. Under these circumstances the AO had no option but to make addition on estimate basis. So far as the percentage of addition is concerned in the case of CIT vs. Simit P. Sheth 2013 (10) TMI 1028 - GUJARAT HIGH COURT has upheld the addition of 12.5% of the total amount of bogus purchases sustained by the ITAT holding that only profit element embedded in such purchases could be added to the income of the assessee. Since the Ld. CIT (A) has restricted the addition to 12.5% no reason to interfere with the findings of the Ld. CIT (A). Moreover the facts of the case relied upon by the Ld. DR are different from the facts of the present case. Hence in our considered view the addition of 12.5% sustained by the Ld. CIT(A) is reasonable to meet the ends of justice. - Decided against revenue.

Summary

Issues:
- Whether the CIT(A) erred in directing the AO to restrict the addition of bogus purchases to 12.5% instead of 25% as made by the AO?
- Whether the CIT(A) failed to consider the Supreme Court's decision on 100% addition for bogus purchases?

Analysis:

Issue 1:
The appeal was filed by the revenue against the CIT(A)'s order, which partly allowed the appeal filed by the assessee against the assessment order. The assessment was reopened based on information that the assessee obtained bogus entries from a non-existent entity. The AO made an addition to the income of the assessee, and the CIT(A) restricted the addition to 12.5% of the alleged bogus purchases. The revenue challenged this decision, arguing that the assessee failed to establish the genuineness of the purchases. The revenue contended that the CIT(A)'s findings were contrary to a Supreme Court decision and should be set aside.

Issue 2:
The revenue further argued that the CIT(A) erred in not considering a Supreme Court decision confirming 100% addition for bogus purchases. However, the assessee's counsel pointed out that the facts of the present case differed from those in the cases relied upon by the revenue. The counsel cited a Gujarat High Court decision upholding the addition of 12.5% of bogus purchases, stating that only the profit element should be added to the income of the assessee. The CIT(A) based the decision on this ratio and the Mumbai Tribunal decisions, finding no infirmity in the order.

Conclusion:
After hearing the parties' submissions and reviewing the material, the Tribunal upheld the CIT(A)'s decision to restrict the addition to 12.5% of the bogus purchases. The Tribunal noted that the AO did not doubt the sales, and the assessee failed to establish the genuineness of the transactions. Considering the circumstances, the Tribunal agreed with the CIT(A) that the addition of 12.5% was reasonable. The Tribunal dismissed the revenue's appeal, stating that the addition was sustained to meet the ends of justice. Therefore, the appeal filed by the revenue for the assessment year 2011-2012 was dismissed.