TMI Blog2017 (11) TMI 244X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance to 12.5% of the purchases treated as non-genuine by estimating profit element in such bogus purchases. - Decided partly in favour of assessee. - ITA NO.916/MUM/2017 And ITA NO.1109/MUM/2017 - - - Dated:- 25-10-2017 - SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER AND SHRI RAJESH KUMAR, HON'BLE ACCOUNTANT MEMBER For The Assessee : Shri B.N.Rao For The Department : Ms. Arju Garodia ORDER PER C.N. PRASAD (JM) 1. These two appeals are filed by the Revenue and assessee against the order of the Learned Commissioner of Income Tax (Appeals) 25 Mumbai dated 22.04.2014 for the Assessment Year 2010-11. 2. The Revenue challenged the orders of the Ld.CIT(A) in deleting addition of ₹.46,73,368/- on account of bogus purchases as against the entire purchases of ₹.62,31,157/- treated as bogus by the Assessing Officer. The assessee in its appeal challenged the order of the Ld.CIT(A) in sustaining the disallowance at 25% of the bogus purchases by estimating the profit element in such purchases. 3. Briefly stated the facts are that the assessment of the assessee was reopened u/s. 147 and reassessments were completed on 20.03.2014 u/s. 143(3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the above parties on the basis of statements recorded by the Sales Tax Authorities as well as further enquiries carried out by them. A list was forwarded to the Income Tax Department for taking necessary action. The Assessing Officer observed that the list contains the names of above mentioned parties, with which the appellant had shown purchases and accordingly disallowance was made. a. In my opinion, only on the basis of information received from the Sales Tax Authorities regarding bogus nature of purchases from the above mentioned parties, cannot be taken as the basis to treat the entire purchases shown as bogus or non-genuine. The information received from the Sales Tax Authorities is a piece of evidence to initiate in-depth independent investigation on the issue. However, the AO has primarily relied on the information received from Sales Tax authorities, On the given set of facts and circumstances and without appreciating the evidences submitted by the appellant during assessment proceedings, total purchases shown to be made from the above parties cannot be held to be entirely bogus. It has not been appreciated that the goods shown to be purchased from these parties we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchased to reduce the profits, cannot be ruled out. Therefore, the gross profit rate shown by the appellant for the year under consideration cannot be relied upon. In the circumstances, the correct approach in such transactions would be to estimate the additional benefit or profit eared on these purchases and not to disallow the entire purchases from these seven parties. The disallowance of the entire amount of purchases from such parties would not be logical and would amount to travesty of justice. In my view either the purchases from these parties are over invoiced or the purchases were actually made but not from the parties from which it was claimed to have been made and instead may have been purchased from grey market without proper billing or documentation. d. As of now the issue of such types of unverifiable purchases have been much discussed and debated by the various courts and tribunals. In many judicial pronouncements on the issue, the Courts have taken a consistent view that in case of non-existent parties from which the purchases are shown to have been made, only part of such purchases can be disallowed, particularly in the such cases where the corresponding sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court of Gujarat has held as under: - We are of the opinion that the Tribunal committed no error. Whether the purchases themselves were bogus or whether the parties from whom such purchases were allegedly made were bogus is essentially a question of fact. The Tribunal having examined the evidence on record came to the conclusion that the assessee did purchase the cloth and sell the finished goods. In that view of the matter, as natural corollary, not the entire amount covered under such purchase, but the profit element embedded therein would be subject to tax. This was the view of this court in the case of Sanjay Oilcake Industries v. CIT [2009] 316 ITR 274 (Guj). Such decision is also followed by this court in a judgment dated August 16,2011, in Tax Appeal No. 679 of 2010 in the case of CIT v. Kishor Amrutlal Patel. In the result, tax appeal is dismissed. g. In view of the facts and circumstances and the judicial pronouncements cited above, what can be disallowed or taxed in the instant case, is the excess profit element embedded in such purchases shown to have been made from these parties. In this regard, the yardstick laid down by the Hon'ble Ahmadabad Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X
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