S/s. 28, 37(1) – A reasonable amount of profit is to be estimated and taxed when purchases are found to be bogus. The entire amount of purchases found to be bogus cannot be disallowed.
FACTS:
The assessee was engaged in the business of undertaking contract for mechanical work viz., fabrication and erection of steel structures, piping, stop log gates, coarse screens, travelling water screens mainly for various Thermal Power Projects undertaken.
The Assessing Officer (AO) observed that in an inquiry conducted by the Department in the case of M/s. Prakash Marbles Engineering Company, for AY 2002-03 it was found that bogus purchase by way of accommodation bills for purchase of material (without the material being received) were procured from Shri Jabbarsingh Chauhan, Proprietor of M/s. Girnar Sales Corporation and Shri Navin Raval, proprietor of M/s. Shiv Metal Corporation. It was found that these parties had issued bogus bills to various parties in the market and the assessee was one of them. During the financial year relevant to assessment year 2002-03 the purchases of the assessee from these two parties amounted to Rs. 14,32,750.
The AO relying on the affidavit of the persons who had issued the bills and observing that the assessee had failed to prove the genuineness of purchases by way of furnishing confirmation from the seller concerned or producing the seller for taking necessary statement disallowed the sum of Rs. 14,32,750 representing aggregate amount of bogus purchases from these two parties.
Aggrieved, the assessee preferred an appeal to the CIT(A) who upheld the action of the AO.
Aggrieved, the assessee preferred an appeal to the Tribunal.
Held:
The Tribunal noted the decision of the co-ordinate `A’ Bench of ITAT in the case of Shri Alap Shirishbhai Derasary vs. ACIT (ITA No. 1101, 1102 & 1103/Ahd/2009 for AY 2002-03, 2003-04 and 2004-05, order dated 21-09- 2012) where the Bench confirmed addition @ 12.50% on the bogus purchases. It also noted that the decision relied upon by the DR in the case of ITO vs. Shri Gumanmal Misrimal (ITA No.s. 2536 & 2537/Ahd/2008 for AY 2003- 04 & 2004-05) where the Bench was dealing with a case where bogus purchases from very same parties viz., Girnar Sales Corporation and M/s. Shiv Metal Corporation. The Bench in this case confirmed profit of 30% of the amount of bogus purchases.
The Tribunal observed that the assessee had not proved the purchases to be genuine. The supplier had given affidavits that they have given bogus bills to the assessee. Therefore, the burden was heavily on the assessee to prove that the transactions are genuine which was not established by it. It is established fact that these are bogus purchases to the extent of Rs. 14,32,750. It held that the decision in the case of Shri Gumanmal Misrimal (supra) squarely applies to the facts of the present case. The Tribunal directed the AO to calculate 30% net profit on bogus purchases.
The appeal filed by the assessee was partly allowed.
