2016 (6) TMI 1139 - HC - Income Tax

Addition on account of alleged bogus purchases at 25% of the total purchases - Held that - On consideration of the matter we find that the facts of the present case are identical to those of M/s. Indian Woollen Carpet Factory (2002 (7) TMI 39 - RAJASTHAN High Court) or M/s. Vijay Proteins Ltd. 2015 (1) TMI 828 - GUJARAT HIGH COURT in the present case the Tribunal has categorically observed that the assessee had shown bogus purchases amounting to Rs. 2, 92, 93, 288/- and taxing only 25% of these bogus claim goes against the principles of Sections 68 and 69C of the Income Tax Act. The entire purchases shown on the basis of fictitious invoices have been debited in the trading account since the transaction has been found to be bogus. The Tribunal having once come to a categorical finding that the amount of Rs. 2, 92, 93, 288/- represented alleged purchases from bogus suppliers it was not incumbent on it to restrict the disallowance to only Rs. 73, 23, 322/-. Additions in respect of purchases from M/s. Somnath Industries from M/s.Krishna Marketing in assessment which has been framed u/s.158BC of the Act despite the fact that in proceedings under Section 132 of the Act no material was found in relation to said two parties to warrant such additions is concerned we are of the view that the Tribunal is justified in holding the same against the assessee and in favour of the revenue. Addition as gross profit on sales made despite the fact that the said sales had admittedly been recorded in the regular books during Financial Year 1997-98 is concerned we are of the view that the assessee cannot be punished since sale price is accepted by the revenue. Therefore even if 6% gross profit is taken into account the corresponding cost price is required to be deducted and tax cannot be levied on the same price. We have to reduce the selling price accordingly as a result of which profit comes to 5.66%. Therefore considering 5.66% of Rs. 3, 70, 78, 125/- which comes to Rs. 20, 98, 621.88 we think it fit to direct the revenue to add Rs. 20, 98, 621.88 as gross profit and make necessary deductions accordingly.

Summary

Issues:
1. Substantial question of law regarding addition on account of alleged bogus purchases
2. Addition of gross profit on sales made by the Assessing Officer
3. Justification of additions in respect of specific purchases
4. Application of law in block assessment under Chapter XIV-B
5. Discrepancy in gross profit calculation on sales

Analysis:

Substantial question of law regarding alleged bogus purchases:
The assessee challenged the Tribunal's decision to retain the addition on account of alleged bogus purchases. The Tribunal had confirmed the findings of the CIT(A) and deted the addition shown for salt washing loss. The assessee argued that the Tribunal erred in estimating 25% of the purchases as undisclosed income without supporting evidence. Additionally, the assessee contended that the addition should have been part of regular assessment, not block assessment, as no evidence was found during the search supporting the undisclosed income. The Tribunal's decision was based on the peak credit in the accounts of bogus suppliers, following previous judgments. However, the Court found that the entire purchases were bogus, and therefore, restricting the addition to 25% was not justified.

Addition of gross profit on sales:
The Tribunal had confirmed the addition of gross profit on sales made by the Assessing Officer. The assessee argued that since the sale price was accepted by the revenue, they should not be penalized. The Court agreed, stating that tax cannot be levied on the same price, and directed the revenue to add a specific amount as gross profit and make necessary deductions accordingly. The question was answered partially in favor of the assessee and partially in favor of the revenue.

Justification of additions in respect of specific purchases:
The Tribunal's decision to uphold additions in respect of purchases from specific parties was challenged. The Court found that the Tribunal was justified in holding the same against the assessee and in favor of the revenue, despite the lack of material found during the search related to these parties.

Application of law in block assessment under Chapter XIV-B:
The assessee argued that the Tribunal incorrectly applied the law in block assessment under Chapter XIV-B. They contended that the additions should have been made under Section 158BD, not 158BC, as the evidence was seized from a different entity. However, the Court found the Tribunal's decision justified based on the evidence presented.

Discrepancy in gross profit calculation on sales:
The Court addressed a discrepancy in the calculation of gross profit on sales made by the Assessing Officer. After considering the arguments, the Court directed the revenue to adjust the gross profit calculation accordingly, partially in favor of the assessee and partially in favor of the revenue.

In conclusion, the Court modified the impugned judgment and order passed by the Tribunal, resulting in the dismissal of the present Tax Appeals.