2024 (3) TMI 1320 - AT - Income Tax

Estimation of income - bogus purchases - HELD THAT - As decided in Mohommad Haji Adam and Company 2019 (2) TMI 1632 - BOMBAY HIGH COURT 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. Following the decision of the Hon ble Bombay High Court we find merit in the submissions of the Ld. AR that the addition should be restricted only to the extent of bringing the gross profit rate on such purchases at the same rate as of other genuine purchases. Thus keeping in view the nature of business of the assessee i.e. manufacturing trading in diamond the Ld. CIT(A) should have sustained the addition to the extent of difference of gross profit declared in regular trading and non-genuine trading transactions. In this case assessee has declared 7.89% and in non-genuine it was declared at 7.64%. The difference is 0.25%. Accordingly we direct the Assessing Officer to disallow only 0.25% of the disputed purchases under section 68 of the Act. Appeal filed by the assessee is allowed.

Summary

Issues:
The issues involved in this case are reopening of assessment u/s 147 of the Income-tax Act, treatment of purchases as non-genuine u/s 69C of the Act, addition of income based on non-genuine purchases, appeal against the order of the Learned Commissioner of Income Tax (Appeals), and determination of the profit element embedded in non-genuine purchases.

Reopening of Assessment:
The appeal was filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals) for the A.Y. 2012-13. The case was reopened u/s 147 of the Act based on information received about accommodation entries provided by various dealers, including the assessee. The Assessing Officer treated the purchases as non-genuine u/s 69C of the Act, leading to the determination of the assessee's income at a higher amount.

Treatment of Purchases as Non-genuine:
The Assessing Officer concluded that the purchases made by the assessee were non-genuine, obtained as accommodation entries without actual transportation of materials. Despite the assessee's submissions, the Assessing Officer treated the purchases as bogus under section 69C of the Act, resulting in a higher income determination for the assessee.

Appeal Against CIT(A) Order:
The assessee appealed before the Ld. CIT(A) and subsequently to the Appellate Tribunal, challenging the addition made by the Assessing Officer. The Ld. CIT(A) directed the Assessing Officer to restrict the addition to the Gross Profit Rate of 7.89% while working out the profit element embedded in the non-genuine purchases.

Determination of Profit Element:
The Appellate Tribunal considered the submissions and material on record, emphasizing that only the profit element embedded in non-genuine purchases should be added to the income. The Tribunal referred to previous judgments and directed the Assessing Officer to disallow only 0.25% of the disputed purchases under section 68 of the Act, in line with the difference in gross profit declared in regular trading and non-genuine transactions.

Conclusion:
Following the decision of the Hon'ble Bombay High Court and the previous case of the assessee, the Appellate Tribunal allowed the appeal filed by the assessee. The Tribunal directed the Assessing Officer to restrict the addition to the profit element embedded in the non-genuine purchases, highlighting the importance of estimating the profit reasonably in such cases.