2017 (12) TMI 1409 - AT - Income Tax

Addition of bogus purchases - G.P. rate determination - Held that - We find the decision of the jurisdictional High Court in the case of Nikunj Eximp Enterprises Pvt. Ltd., (2013 (1) TMI 88 - BOMBAY HIGH COURT) is relevant for the proposition that while accepting the sales, rejecting the bogus purchases entirely and making entire addition is not in tune with the principles of making sustainable assessment. GP rates of the assessee are never consistent. They are varying from 7.59% to 23.5%. Therefore, there is requirement of garnering the GP rates of the other years may be subsequent to the year under consideration as well before coming to the correct conclusion relating to the GP rates of the assessee. If necessary, there is a requirement of gathering the GP rates of the businesses of similar nature from the open market and make use of the relevant data for arriving at appropriate GP rate in this line of the business of the assessee. As such, there are various decisions against making of entire bogus purchases as additional income of the assessee. AO is directed to examine all these angles meticulously, i.e. appropriate GP rate, applying the rates of various decisions cited above, the finding of the Settlement Commission in case of the sister concerns and the profits offered by the assessee on this discovery of bogus purchases etc., and grant reasonable opportunity of being heard to the assessee in the remand proceedings. - Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Disallowance of interest expenditure and penalty under section 271(1)(c) of the Income Tax Act.
2. Addition of income due to bogus purchases in reassessment proceedings.

Issue 1: Disallowance of interest expenditure and penalty under section 271(1)(c) of the Income Tax Act:
The appellant, a company engaged in manufacturing, faced disallowance of interest expenditure by the Assessing Officer (AO) due to alleged diversion of funds for non-business purposes. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed the disallowance. The Tribunal remanded the matter back to the AO for fresh adjudication. The appellant requested remanding the penalty appeal to CIT(A), which was allowed by the Tribunal. The Tribunal directed the CIT(A) to decide on the penalty in line with the quantum proceedings. Ultimately, the appeal of the assessee was allowed for statistical purposes.

Issue 2: Addition of income due to bogus purchases in reassessment proceedings:
In a reassessment proceeding, the AO added a significant amount as income due to inflated bogus purchases by the appellant. The CIT(A) confirmed the addition. The appellant appealed, arguing that the addition was erroneous and referred to pending applications before the Income-tax Settlement Commission (ITSC) by group concerns. The appellant also highlighted inconsistencies in gross profit rates and cited relevant case laws. The Tribunal noted the need to consider various factors, including GP rates, decisions in similar cases, and ITSC outcomes. The Tribunal directed the AO to re-examine the case thoroughly, considering all relevant aspects and providing a reasonable opportunity to the assessee. Consequently, the appeal of the assessee was allowed for statistical purposes.

In conclusion, both appeals of the assessee were allowed for statistical purposes as per the detailed analysis and directions provided by the Tribunal in each issue.