2019 (2) TMI 1632 - HC - Income Tax

Bogus purchases - bogus accommodation bills - hawala transactions from certain parties who were only providing accommodation sale bills - whether the Revenue is correct in contending that the entire purchase amount should be added by way of assessee's additional income or the assessee is correct in contending that such logic cannot be applied? - ITAT deleted the addition - HELD THAT - The finding of the CIT(A) and the Tribunal would suggest that the department had not disputed the assessee's sales. There was no discrepancy between the purchases shown by the assessee and the sales declared. That being the position, the Tribunal was correct in coming to the conclusion that the purchases cannot be rejected without disturbing the sales in case of a trader. The Tribunal, therefore, correctly restricted the additions limited to the extent of bringing the G.P. rate on purchases at the same rate of other genuine purchases. - Decided against revenue

Summary

Issues:
- Whether the ITAT was justified in not confirming the addition made by the Assessing Officer on account of bogus purchases?
- Whether the ITAT was justified in presuming purchases and giving relief to the assessee where no purchases were made from certain parties?
- Whether the order of the ITAT is perverse as no reasonable person could arrive at such a finding?

Analysis:

Issue 1:
The appeals arose from a common judgment of the Income Tax Appellate Tribunal (ITAT) regarding the addition made by the Assessing Officer (AO) on account of bogus purchases. The AO concluded that the purchases were bogus based on survey operations and added the entire sum to the assessee's income. The Commissioner of Appeals accepted the purchases as bogus but reduced the addition to 10% of the purchase amount. The Tribunal partly allowed the appeal of the assessee and dismissed that of the Revenue, deleting the additions made by the Commissioner of Appeals.

Issue 2:
The ITAT's decision to not confirm the addition made by the AO was based on the fact that the department had accepted the sales, and there was no reason to reject the purchases. The Tribunal deleted the ad hoc additions made by the Commissioner of Appeals but permitted the AO to tax the assessee based on the difference in the Gross Profit (GP) rates. The Revenue contended that the entire amount should have been added to the income of the assessee since the purchases were proven to be bogus. However, the Tribunal's decision was based on the principle that purchases cannot be rejected without affecting the sales of a trader.

Issue 3:
The Tribunal's decision was supported by the fact that there was no discrepancy between the purchases shown by the assessee and the declared sales. The Tribunal correctly restricted the additions to bring the GP rate on purchases at the same rate of other genuine purchases. The Gujarat High Court's judgment cited by the Revenue was deemed inapplicable to the case at hand. The Court held that no question of law arose in this scenario, and therefore, all Income Tax Appeals were dismissed.

In conclusion, the judgment highlighted the importance of considering the relationship between purchases and sales in determining the taxation implications of alleged bogus transactions, ultimately leading to the dismissal of the appeals with no order as to costs.