I-T - When purchases are not bogus but are made from parties other than those mentioned in books, only profit element embedded in such purchases requires addition: ITAT
By TIOL News Service
MUMBAI, MAY 19, 2017: THE ISSUE BEFORE THE TRIBUNAL IS - Whether when purchases are not bogus but are made from parties other than those mentioned in the books of account, only profit element embedded in such purchases should be added to assessee's income? YES is the answer.
Facts of the case:
During the subject year, the AO noted that as per the information received from Sales Tax Department the assessee was involved in taking entries of bogus purchases.The AO found that the TIN provided by the assessee in the above mentioned cases was exactly the same as appearing in the information available. In response to the notice u/s 142(1) along with questionnaire issued by the AO, the assessee filed submissions. The AO having examined the same found that assessee company had stated that the mentioned above parties were not available. The genuineness of said purchases could not be verified as the assessee was unable to give present address of the said parties, and also unable to produce the said dealers/parties. In view of the above, the AO made addition of certain amount as suppressed profit by way of bogus purchases. On appeal, CIT(A) reduced the said purchases and directed the AO to estimate profit @12.5% on purchases of Rs. 25,67,420/- and make an addition of Rs. 3,20,927/-.
On appeal, Tribunal held that,
++ the assessee could not file before the AO the present address of the said dealers / parties , therefore the latter was not in a position to make any verification. The assessee also failed to file before the AO the transport receipt and the assessee – company was not keeping day-to-day stock register for raw materials, finished goods, manufacturing account . The auditor has also certified that as the company has not maintained any stock record, it was not possible to give quantitative details.In the case of Simit P. Sheth, Gujarat High Court on similar issues held that since purchases were not bogus but were made from parties other than those mentioned in the books of account, only profit element embedded in such purchases could be added to assessee's income. In view of the above, the order of the CIT(A) directing the AO to estimate 12.5% of the bogus purchases of Rs.25,67,420/- and tax only the profit embedded therein of Rs. 3,20,927/- was upheld.
(See 2017-TIOL-684-ITAT-MUM)
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