2020 (3) TMI 1161 - AT - Income Tax

Bogus purchases - purchases made from grey market - HELD THAT - Since assessee has already offered GP of 26% on the purchases and sales booked as per the P Account which has not been tinkered with by the AO/Ld. CIT(A) and that as the assessee has also offered the cost of procuring the accommodation bills amounting to ₹ 56.75 lakhs @ 4% which comes to ₹ 2.33 lakhs in the IDS and offered tax for the undisclosed amount. So according to us, no more addition is warranted because when this IDS tax also is added to the GP of the assessee, then it will come to 30% GP. Therefore, no separate addition on the undisclosed amount of profit is warranted since it is not the case that AO/Ld. CIT(A) could unearth any hidden profit which was discovered as investments/cash/bullion etc. so in the aforesaid facts and circumstances, the addition made is deleted. - Decided in favour of assessee

Issues:
1. Appeal against Ld. CIT(A)'s order for AY 2011-12.
2. Dispute over addition of bogus purchases by AO.
3. Reopening of assessment based on information from search operation.
4. Assessee's disclosure of undisclosed income under IDS 2016.
5. AO's addition of entire bogus purchase amount.
6. Ld. CIT(A)'s partial relief by restricting addition to GP @ 26.88%.
7. Assessee's challenge to Ld. CIT(A)'s decision.
8. Assessee's explanation regarding procurement of goods from grey market.
9. Govt. contract for supply and installation of pipes by the assessee.
10. Contention on acceptance of sales figures by AO.
11. Explanation on procurement of accommodation bills.
12. Assessee's declaration under IDS 2016.
13. Request for full relief by the assessee.
14. Deletion of addition by ITAT Kolkata.

Analysis:
1. The appeal was filed against the Ld. CIT(A)'s order for AY 2011-12. Ground no.1, a legal issue, was not argued and dismissed. Ground no.2 challenged the Ld. CIT(A)'s partial confirmation of the addition of bogus purchases by the AO. The AO, based on information from a search operation, reopened the assessment due to transactions with a party involved in accommodation entries. The assessee disclosed undisclosed income under IDS 2016, which was partially accepted. The AO added the entire bogus purchase amount, leading to the appeal before the Ld. CIT(A).

2. The Ld. CIT(A) restricted the addition to GP @ 26.88% of the bogus purchase amount, disagreeing with the AO's approach. The assessee challenged this decision, arguing that the purchases were necessary for their government contract work. They contended that the sales figures were accepted by the AO, and the procurement of goods from the grey market was to cover up the purchases. The assessee's explanation was supported by the physical existence of closing stock and audited accounts.

3. The ITAT Kolkata noted the assessee's declaration under IDS 2016 and the acceptance of the undisclosed income by the PCIT-16. Considering the GP declared by the assessee and the IDS declaration, the ITAT concluded that no further addition was warranted. The ITAT found no hidden profit and deleted the addition made by the AO, granting full relief to the assessee. The appeal was allowed, and the order was pronounced on 5th February 2020.

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