2021 (7) TMI 1382 - AT - Income Tax

Estimation of Income - bogus purchases - CIT(A) restricting the addition to 12.5% of the bogus purchases as against 100% made by the AO - HELD THAT - As we observe that Ld. CIT(A) has passed the appellate order after following the decision of Hon ble Gujarat High Court in the case of CIT vs. Simit P. Sheth 2013 (10) TMI 1028 - GUJARAT HIGH COURT wherein it has been held that in case of bogus purchases only profit element embedded in the bogus purchases is to be assessed. We note that the co-ordinate benches of the Tribunal have been taking a consistent view that in case of bogus purchases only a GP rate ranging between 2% to 12.5% whereas the CIT(A) has directed to assess the income @ 12.5% which is quite justified and reasonable and therefore we do not find any reason why the Revenue is aggrieved by this order. Accordingly we uphold the order of the ld CIT(A) by dismissing the appeal of the revenue.

Summary

Issues:
- Appeal against CIT(A) order restricting addition to 12.5% of bogus purchases instead of 100% by AO.

Analysis:
The appeal before the Appellate Tribunal ITAT Mumbai pertains to the Revenue challenging the order of the Commissioner of Income Tax (Appeals) regarding the assessment year 2009-10. The primary issue raised by the Revenue was the limitation imposed by the CIT(A) on the addition to 12.5% of the bogus purchases, contrary to the 100% addition made by the Assessing Officer (AO). The case originated from the reopening of the assessee's case based on information suggesting hawala purchase entries benefiting the assessee. The AO, after due assessment proceedings, concluded the purchases as non-genuine and added 12.5% of the amount to the assessee's income.

During the appellate proceedings, the CIT(A) partially allowed the assessee's appeal by instructing the AO to apply a rate of 12.5% to the bogus purchases. This decision was based on the precedent set by the Hon'ble Gujarat High Court in the case of CIT vs. Simit P. Sheth, emphasizing that only the profit element within the bogus purchases should be taxed, not the entire amount. The Tribunal noted that previous decisions had established a GP rate between 2% to 12.5% for such cases, making the CIT(A)'s directive of 12.5% reasonable and justifiable. Consequently, the Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal.

In conclusion, the Appellate Tribunal ITAT Mumbai, comprising of the Judicial Member and the Accountant Member, affirmed the CIT(A)'s decision to restrict the addition to 12.5% of the bogus purchases, in line with legal precedents and the principles of taxing only the profit element in such transactions. The Tribunal found the CIT(A)'s order to be appropriate and reasonable, thereby dismissing the Revenue's appeal and upholding the decision in favor of the assessee.