The Tax Publishers2022 TaxPub(DT) 0201 (Mum-Trib)

INCOME TAX ACT, 1961

Section 145

There should be an estimation of profit element from bogus purchases and should be estimated reasonably as the assessee could not conclusively prove that the purchases made are from the parties as claimed, especially in the absence of any confirmations from them, therefore, it would be justified if the profit element embedded in those purchases are estimated at 4% and AO was directed to estimate the profit element from the non-genuine purchases at 4%.

Accounting method - Estimation of income - Bogus purchases - Tribunal restricted the estimation to 4% bogus purchases

AO received information from the DGIT (Inv.) about the accommodation entries provided by various dealers and assessee was also one of the beneficiary from those dealers. Assessee was required to prove the genuineness of the purchases made from various dealers. Assessee furnished purchase invoice of the specified party, copies of bank statements, chart showing the details final order purchases of the alleged parties and submitted that purchases made were genuine. Assessee further submitted that the payments are made through account payee cheques as such contended that all the purchases are genuine. However, AO treated the purchases as non-genuine and he was of the opinion that assessee had obtained only accommodation entries without there being any transportation of materials and assessee might have made purchases in the gray market. Therefore, AO treated purchases as non-genuine. CIT(A) sustained the action of AO in estimating the Gross Profit at 12.5%. Held: Simply because the parties were not produced, the entire purchases cannot be added as held by High Court in the case of CIT v. Nikunj Eximp (2015) 216 Taxman.com 171 (Bom) : 2015 TaxPub(DT) 1855 (Bom-HC). There should be an estimation of profit element from these purchases and should be estimated reasonably as the assessee could not conclusively prove that the purchases made are from the parties as claimed, especially in the absence of any confirmations from them. Taking the totality of facts and circumstances, it would be justified if the profit element embedded in those purchases are estimated at 4%. Accordingly, AO was directed to estimate the profit element from the non-genuine purchases at 4%

Followed:CIT v. Simit P Sheth (2013) 38 taxman.com 385 (Guj) : (2013) 356 ITR 451 (Guj) : 2013 TaxPub(DT) 2115 (Guj-HC), CIT v. Nikunj Eximp Enterprises (P) Ltd. (2015) 216 Taxman.com 171 (Bom) : 2015 TaxPub(DT) 1855 (Bom-HC), CIT v. Bholanath Poly Fab (P) Ltd. (2013) 355 ITR 290 (Guj) : 2013 TaxPub(DT) 1852 (Guj-HC) and Shri Vinod C. Sanghavi v. ITO [ITA No. 6210/Mum/2018 and ITA No. 7916/Mum/2019, dated 3-8-2021]

REFERRED :

FAVOUR : Partly in assessee's favour

A.Y. : 2009-10


INCOME TAX ACT, 1961

Section 250(6)

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