2019 (6) TMI 1722 - AT - Income Tax

Estimation of income - bogus purchases - CIT(A) reduced the same to 5% - HELD THAT - As decided in M Haji Adam Co 2019 (2) TMI 1632 - BOMBAY HIGH COURT the addition in respect of bogus purchases is to be limited to the extent of bringing the gross profit rate on such purchases at the same rate as of other genuine purchases. Thus respectfully following the aforesaid judgement of the honourable High Court set aside the matter to the fife of the assessing officer with the direction to restrict the addition as regards the bogus purchases by bringing the gross profit rate on such bogus purchases at the same rate as that of the other genuine purchases.

Summary

Issues involved:
The issues in this case involve the sustenance of a 5% disallowance on account of bogus purchases, reduction of the disallowance from 8% to 5% by CIT(A), and the subsequent appeal before ITAT.

Details of Judgment:
1. The assessing officer made an 8% addition on account of bogus purchases, which was later reduced to 5% by CIT(A).
2. The ITAT considered the documentary evidence provided by the assessee for the purchases and noted that while adverse inferences were drawn due to the inability to produce suppliers, the sales were not doubted. The ITAT referenced a High Court decision which upheld hundred percent allowances for purchases deemed bogus when sales are not doubted.
3. The ITAT observed that the assessee had made purchases from the grey market, resulting in savings at the expense of the exchequer. Following a recent High Court judgment, the ITAT limited the addition in respect of bogus purchases to bring the gross profit rate in line with genuine purchases.
4. The Tribunal allowed the appeal partly, deleting ad hoc additions but permitting the A.O. to tax the assessee based on the difference in GP rates.
5. The Tribunal's decision was supported by the fact that there was no discrepancy between the purchases and sales shown by the assessee, leading to the conclusion that purchases cannot be rejected without affecting sales in the case of a trader.
6. The matter was set aside to the assessing officer with directions to restrict the addition by aligning the gross profit rate on bogus purchases with genuine purchases, ensuring the assessee is given a fair hearing.
7. Ultimately, the assessee's appeal was partly allowed by the ITAT.

Separate Judgment:
No separate judgment was delivered by the judges in this case.

Conclusion:
The ITAT Mumbai partially allowed the assessee's appeal, emphasizing the need to align the gross profit rate on bogus purchases with genuine purchases and granting the assessee a fair opportunity to present their case.