2020 (1) TMI 1144 - HC - Income Tax

Bogus purchases - estimated dis-allowance of 5% alleged bogus purchases - HELD THAT - The assessee had declared 7.31% towards profit on such alleged bogus purchases. The Tribunal took a view that in view of the profits already declared in the alleged bogus purchases in the vicinity of 7% and an estimated dis-allowance of 5% alleged bogus purchases over and above the profits already declared would cover possible suppression in profits and will balance the equity. The Tribunal also relied upon the decision of this Court in the case of C IT V/s Bholanath Poly Fab Pvt. Ltd. 2013 (10) TMI 933 - GUJARAT HIGH COURT We should not interfere with the impugned order passed by the Tribunal as the view taken by the Tribunal is quite reasonable.

Summary

Issues:
1. Interpretation of Section 260A of the Income-tax Act, 1961
2. Disallowance of bogus purchases in Income Tax Assessment
3. Reliance on previous orders and judgments in tax appeals

Interpretation of Section 260A of the Income-tax Act, 1961:
The Tax Appeal in this case was filed under Section 260A of the Income-tax Act, 1961 by the Revenue against the order of the Income Tax Appellate Tribunal. The significant question of law raised was whether the Appellate Tribunal erred in reversing the decision of the CIT(A) and restricting the disallowance of a specific amount made on account of bogus purchases. The Tribunal's decision was challenged by the Revenue in this Appeal before the High Court.

Disallowance of Bogus Purchases in Income Tax Assessment:
The case involved the reopening of the assessee's income tax return based on information received regarding bogus purchases. The Assessing Officer found that the assessee had engaged in bogus purchase transactions with various parties, leading to a disallowance. The Appellate Tribunal, however, restricted the disallowance to 5% of the total bogus purchases, considering the profits already declared on the alleged bogus purchases. The Tribunal's decision was based on the principle that the purchases themselves cannot be treated as bogus, and an estimated disallowance of 5% would balance the equity. The High Court, after analyzing the Tribunal's reasoning and the facts of the case, upheld the Tribunal's decision, stating that it was reasonable and declined to interfere with it.

Reliance on Previous Orders and Judgments in Tax Appeals:
The Appellate Tribunal relied on its earlier order in the assessee's case for the A.Y. 2009-10 while deciding the current Appeal. The Tribunal considered various judgments, including decisions of the Gujarat High Court and the Supreme Court, to support its reasoning for restricting the disallowance of bogus purchases. The High Court also referred to these judgments and found merit in the Tribunal's decision based on the principles established in previous cases. The Court dismissed the Appeal, concluding that the Tribunal's decision was justifiable and reasonable in the given circumstances.

In conclusion, the High Court upheld the decision of the Appellate Tribunal regarding the disallowance of bogus purchases, emphasizing the importance of balancing equity and considering profits already declared. The judgment provides valuable insights into the interpretation of tax laws, reliance on precedent, and the application of principles to determine disallowances in income tax assessments.