👍👍👍👍👍Bogus Purchases Bills without actual delivery of goods: ITAT directs AO to charge 6.5% Gross Profit Rate

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The Mumbai bench of Income Tax Appellate Tribunal (ITAT) directed the Assessing Officer (AO) to charge 6.5% Gross Profit Rate on the bogus purchase bills.

The assessee is an individual running a proprietary concern in the name of M/s. Mayur Steel Industries being into the business of trading in ferrous and non ferrous metals.

Due to information from the Sales Tax Department and the Directorate General of Income Tax (Investigation) [DGIT (Inv.)] that “some businessmen have engaged in accepting bogus purchase bills from bogus hawala bill providers and the assessee is one of such beneficiaries of bogus purchase bills,” the assessment was reopened during the assessment year. This was done by starting the proceedings under sections 147 or 148 of the Income Tax Act, 1961.

Unquestionably, the AO and Commissioner Income Tax (Appeals) made the entire addition in this case based on guesswork and estimation using information purportedly obtained from the Maharashtra Sales Tax Department and the Mumbai DGIT (Inv.) that “the assessee has taken bogus purchase bills without having taken any delivery of the goods, without applying their mind.”

The bench of Gagan Goyal (Accountant Member) and Kuldip Singh (Judicial Member) perused the order passed by the CIT(A) in the earlier years wherein profit percentage embedded in such purchases was restricted to 6.5% (i.e. 4% of VAT levied + 2.5% towards profit margin).

Furthermore, the bench noted the decision of the Bombay High Court in the case of Pr. CIT vs. JK Surface Coatings Pvt. Ltd. upheld the Tribunal’s position that, under the circumstances, gross profit should be in the range of 5% to 12.5% as a reasonable estimation of the profit element ingrained in the fictitious purchases.

Additionally, the AO was instructed to charge the assessee at the gross profit rate of 6.5% on alleged bogus purchases of Rs. 3,70,79,423 based on the gross profit earned by the assessee in the earlier years, when profit element was fixed at 6.5%.To Read the full text of the Order CLICK HERE

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Babulal Hajarimalji Jain, Vs Income Tax Officer 19(1)(2),

CITATION:   2023 TAXSCAN (ITAT) 880

Case Number:   ITA No.274/M/2023

Date of Judgement:   28 . 04 . 2023

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