2019 (12) TMI 1617 - AT - Income Tax

Estimation of income - Bogus purchases - A.O. made addition by estimating GP on such alleged bogus purchases - HELD THAT - As in case of bogus purchases where sales are accepted and assessee has filed quantitative details of purchases and also stock register reflecting goods received, the addition is required to be made only to the extent of difference between the GP declared by the assessee on normal purchases vis a vis bogus purchases. We restore the matter back to the file of the A.O. to restrict the addition to the extent of lower GP declared by the assessee in respect of bogus purchases as compared to GP on normal purchases. The assessee is also directed to give full details to the A.O. with regard to GP earned on normal purchases and also GP earned on alleged bogus purchases. Appeals of the assessee are allowed in part for statistical purposes only.

Summary

Issues involved:
Appeals against separate orders of CIT(A) for A.Y. 2011-12 and 2013-14 regarding reopening of assessment and estimation of gross profit on alleged bogus purchases.

Analysis:
1. Reopening of Assessment and Estimation of Gross Profit:
The appeals were filed against the CIT(A)'s orders for A.Y. 2011-12 and 2013-14 concerning the reopening of assessment and estimation of gross profit on alleged bogus purchases. The AO reopened the case based on information regarding accommodation bills for diamond purchases. The CIT(A) confirmed the addition by estimating profit at 3% on both polished and rough diamonds. The assessee contended that genuine purchases were made with complete details provided to the AO. The AR argued against the justification of the addition and the reopening for A.Y. 2011-12. The assessee relied on a High Court decision and argued that the addition should be limited to the difference in GP between normal and bogus purchases.

2. Judicial Precedents and Arguments:
The AR cited the decision of the Jurisdictional High Court in a specific case and emphasized consistent application by various Tribunal Benches. The AR argued that when sales are accepted, the addition for bogus purchases should only be based on the GP difference between normal and bogus purchases. The DR, however, supported the AO's order, highlighting the use of accommodation bills without taking delivery. The Tribunal analyzed the facts, noting the detailed records provided by the assessee regarding purchases and sales. The Tribunal referred to the High Court decision and a Coordinate Bench ruling to restrict the addition to the GP difference between normal and bogus purchases.

3. Decision and Directions:
Based on the High Court decision and the Coordinate Bench ruling, the Tribunal directed the AO to limit the addition to the lower GP declared by the assessee for bogus purchases compared to normal purchases. The assessee was instructed to provide full details of GP earned on both normal and alleged bogus purchases. Consequently, both appeals were allowed in part for statistical purposes only, and the matter was remanded back to the AO for necessary actions. The order was pronounced in open court on 16th December 2019.