2020 (2) TMI 1664 - AT - Income Tax

Estimation of income - Bogus purchases - A.O. made addition by estimating GP on such alleged bogus purchases - HELD THAT - As decided in own case 2019 (12) TMI 1617 - ITAT MUMBAI 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:
- Addition upheld on account of bogus purchases
- Reopening of assessment and estimation of gross profit on alleged bogus purchases

Analysis:
1. The appeals were filed by the assessee against the order of CIT(A) for A.Y. 2012-13, 2013-14 & 2014-15, regarding the addition upheld on account of bogus purchases. The AO had reopened the assessment based on information about accommodation bills for purchases, adding 5% of alleged bogus purchases to the income. The CIT(A) restricted the addition to 3%, leading to further appeal.

2. In the case of Kirtikumar D Doshi, the Tribunal had previously restored a similar matter back to the AO, limiting the addition to the difference between GP declared for bogus purchases and normal purchases. The assessee, engaged in trading and manufacturing of diamonds, argued that complete quantitative details were provided for genuine purchases, and the A.O. lacked justification for the addition on such purchases.

3. The Tribunal referred to the decision of the Hon'ble Jurisdictional High Court in a related case, emphasizing that when sales are accepted, the addition for bogus purchases should be limited to the difference in GP between bogus and normal purchases. Following this principle, the Tribunal directed the matter to be reconsidered by the AO, with specific instructions to restrict the addition based on the GP declared by the assessee for bogus purchases compared to normal purchases.

4. In another case involving trading and manufacturing of diamonds, the AO had added 3-5% of the alleged bogus purchases, which was reduced to 3% by the CIT(A). The Tribunal, finding similarities with the previous case, ordered both appeals to be sent back to the AO for fresh consideration in line with the directions given in the earlier case.

5. The judgments emphasized the need to restrict additions on bogus purchases to the difference in GP between normal and bogus purchases when sales are accepted, following the decisions of the Hon'ble Jurisdictional High Court and the Coordinate Bench of the ITAT, Mumbai. The appeals were allowed for statistical purposes, with the matters restored to the AO for reevaluation based on the specified guidelines.