2023 (11) TMI 285 - AT - Income Tax

Estimation of income - bogus purchases - CIT(A) estimated the profit derived by the assessee at 7.5% of the total purchase - HELD THAT - CIT(A) considered the assessee s Gross Profit rate at 9.52% and Net Profit at 2.09% and considering the probable savings in the cost of purchase of goods in grey market by avoiding burden of VAT at 5% and then determined the profit made by the assessee at 7.5% on the purchase from M/s. Chauhan Suppliers. This decision arrived by CIT(A) by following decision in the case of Sandeep Kumar Chandak 2019 (10) TMI 1424 - ITAT AHMEDABAD and Sun Steel 2004 (6) TMI 236 - ITAT AHMEDABAD-B which were later confirmed by the High Court of Gujarat in Sandeep Kumar Chandak 2020 (10) TMI 95 - GUJARAT HIGH COURT . Thus the finding arrived by the Ld. CIT(A) does not require any interference and Revenue could not produce before us any document in support of its claim to sustain the entire addition made by the AO. The Case law relied by Ld. D.R. is clearly distinguishable. Thus no hesitation in confirming the order passed by the Ld. CIT(A). Decided against revenue.

Summary

Issues Involved:
1. Disallowance of bogus purchase.
2. Estimation of profit derived from bogus purchase.
3. Reliance on judicial precedents and relevant case laws.

Summary:

1. Disallowance of Bogus Purchase:
The Revenue filed appeals against the orders by the Commissioner of Income Tax (Appeals) concerning the disallowance of bogus purchases for the Assessment Years 2014-15 and 2015-16. The assessee, a Private Limited Company engaged in manufacturing Craft Papers, had its assessment reopened based on information from DGCEI about bogus suppliers. The Assessing Officer (A.O.) added the purchase from M/s. Chauhan Suppliers as bogus and included it as the income of the assessee.

2. Estimation of Profit Derived from Bogus Purchase:
The Commissioner (Appeals) considered various submissions and financial ratios of the assessee, estimating the profit at 7.5% on the bogus purchase, reducing the addition to Rs. 7,90,739/- from Rs. 97,52,444/-. The Commissioner noted discrepancies in purchases but did not doubt the production, sales, yield ratio, or other financial ratios. The Commissioner concluded that the appellant might have purchased raw materials from sources other than the impugned vendor, benefiting from non-payment of VAT and other savings.

3. Reliance on Judicial Precedents and Relevant Case Laws:
The Commissioner relied on the Gujarat High Court judgment in PCIT Vs. Sandeep Kumar Chandak, which dealt with similar issues. The Tribunal noted that the assessee made sales against the purchases, and there was no defect in the books of accounts. The Tribunal held that only the profit element embedded in such purchases should be added to the income. The Revenue's appeal argued that the entire bogus purchase should be disallowed, citing the Gujarat High Court decision in N.K. Industries vs. DCIT. However, the Tribunal found that the case law cited by the Revenue was distinguishable and upheld the Commissioner's decision.

Conclusion:
The Tribunal confirmed the Commissioner's order, emphasizing that only the profit element from the bogus purchases should be added to the income. The grounds raised by the Revenue were dismissed, and both appeals filed by the Revenue were dismissed. The order was pronounced in open court on 03-11-2023.