Bogus Purchase-profit already disclosed to be reduced from profit rate applied. AO was directed to give credit for disclosed profit and re-compute income – ITAT Judgment
ABCAUS Case Law Citation:
ABCAUS 1244 (2017) (05) ITAT
The relevant issue is comprised in two appeals filed by the two appellant assessee(s) who were aggrieved by the order passed by the Commissioner of Income Tax (Appeals) [CIT(A)] confirming the action of the Assessing Officer (‘AO’) adopting gross profit rate of 12.5% of the alleged bogus purchases.
Assessment Year : 2009-10 , 2010-11
Date/Month of Pronouncement: May, 2017
Important Case Laws Cited relied upon:
Simit P Sheth (2013) 356 ITR 451 (Gujarat High Court)
Brief Facts of the Case:
The DGIT(Investigation) received information from Sales Tax Department that the two assessees had made bogus purchases from various parties for the relevant assessment years.
The Sales Tax Department had carried out detail enquiries in respect of the said parties and recorded statements, deposition, affidavits etc. of main person of the said parties establishing that those concerns were providing bogus bills and actually were hawala dealers. It also established that no actual goods are delivered by these parties and issued only bogus bills for commission.
Before the Assessing Officer (‘AO’) the assessees contended that these purchase transactions were genuine and VAT had already been paid by assessee on the above purchases. It was submitted that considering the nature of the business of the assessee and also the fact that the payments was made by accounts payee cheques and complete sale and purchase invoices available with the assesse and corresponding sale was made the entire purchases may be accepted as genuine. However, the AO in both the cases treated the purchase as bogus and applied profit rate at the rate of 12% by following the decision of Hon’ble Gujarat High Court.
Aggrieved, the assessee preferred the appeal before CIT(A), who also confirmed the action of the AO and in both the cases the order of CIT(A) was identically worded.
Observations made by the Tribunal:
The Tribunal observed that in view of the fact that though the assessee had submitted copies of the ledger account of parties, copies of banks statements highlighting payments by account payee cheques, copy of invoices of purchases and corresponding sales against the purchase but it could not submit the transport invoices of the goods and also could not prove the movement of the goods and the assessee was also not maintaining any stock register, the AO had reasonably estimated the profit rate at 12.5%.
However it was observed that the assessee had already disclosed that profit element embedded in the sales carried out by the assessee corresponding to the same purchases.
The ITAT further observed that as stated by the assessee, the profit margin in assessee’s case was around 3 to 5 % but he could not give profit ratio of the previous three years. As regards to the application of profit rate of 12.5%, though no infirmity was found in the orders of the lower authorities, however, AO was directed in both the appeals of the assessee that credit of already disclosed profit should be allowed to assessee in regard to these bogus purchases.
It was held that the assessee shall provide profit rate of this year to the AO and accordingly, AO will allow credit for the disclosed profit and re-compute the income accordingly.