2016 (2) TMI 1027 - AT - Income Tax

Bogus purchases - NP determination - Held that - NP ratio of assessee has increased to 3.54 as against 2.58 in AY 2007-08. The NP ratio was not disputed by ld DR for the revenue. The Hon ble Bombay High Court in CIT Vs Hariram Bhambhani 2015 (2) TMI 907 - BOMBAY HIGH COURT held that revenue is entitled to bring the entire sales consideration to tax, but only the profit attributable on the total unrecorded sales consideration alone can be subject to income tax. Considering the above referred factual position and the decision of Co-ordinate Bench in assessee s own case for AY 2010-11, we deem it appropriate to restrict the disallowance @ 10% of the impugned purchases. We order accordingly. - Decided partly in favour of assessee

Summary

Issues:
Validity of re-opening assessment u/s 147 of the Income Tax Act
Disallowance of aggregate amount of purchases made from alleged bogus parties

Analysis:

Issue 1: Validity of re-opening assessment u/s 147 of the Income Tax Act
The case involved the re-opening of assessment u/s 147 of the Income Tax Act based on information received from a survey action. The Assessing Officer (AO) re-assessed the income and made a disallowance of the aggregate amount of purchases made from alleged bogus parties. The assessee challenged the validity of re-opening and the addition of the aggregate amount before the ld. CIT(A). The ld. CIT(A) granted partial relief to the assessee by restricting the disallowance to 12.5% of the purchases. The Revenue appealed against the restriction, while the assessee appealed for deleting the 12.5% disallowance. During the hearing, the assessee's Authorized Representative did not press the ground regarding the re-opening of assessment u/s 147, leading to its dismissal.

Issue 2: Disallowance of aggregate amount of purchases made from alleged bogus parties
The second issue revolved around the disallowance of the aggregate amount of purchases made from alleged bogus parties. The Revenue contended that a similar disallowance was upheld in the assessee's case for the AY 2010-11. The Tribunal considered the facts and the decision of the Co-ordinate Bench in the AY 2010-11 case, where it was observed that only the profit element embedded in such purchases should be added to the income of the assessee, not the entire purchase price. The Tribunal, based on the NP ratio of the assessee and previous judgments, restricted the disallowance to 10% of the impugned purchases. Consequently, the appeal of the assessee was partly allowed, and the appeal of the Revenue was dismissed.

In conclusion, the Tribunal upheld the decision of the ld. CIT(A) to restrict the disallowance of purchases made from alleged bogus parties to 10% based on the NP ratio of the assessee and previous judgments. The Tribunal dismissed the appeal of the Revenue and partly allowed the appeal of the assessee, emphasizing the importance of considering the profit element embedded in such purchases for taxation purposes.