2020 (6) TMI 571 - AT - Income Tax

Levying penalty u/s.271(1)(c) - bogus purchases addition - HELD THAT - We have also given considerable thought to the judgment of the Hon'ble Bombay High Court in the case of Pr. CIT Vs. Mohommad Haji Adam 2019 (2) TMI 1632 - BOMBAY HIGH COURT wherein it has been held that no ad-hoc addition at the rate of 10% of bogus purchases is warranted. Rather, the addition should be made to the extent of difference between gross profit rate on genuine purchases and gross profit rate of bogus purchases. Reverting to the facts of the present case and taking guidance from the said judgment of the Hon'ble Bombay High Court in the case of Pr.CIT Vs. Mohommad Haji Adam (supra.), we set aside the order of the Ld. CIT(Appeal) and restore the matter back to the file of the Assessing Officer for undertaking this exercise and finding out the excess gross profit rate earned from bogus purchases and then making the addition accordingly after allowing reasonable opportunity of hearing to the assessee. Appeal of the assessee is allowed for statistical purposes. Penalty u/s 271(1)(c) - We set aside the order of the Ld. CIT(Appeals) in this appeal also and remit the matter of penalty issue back to the file of Assessing Officer to adjudicate in view of the quantum matter already in front of him as per law and after providing reasonable opportunity of hearing to the assessee.

Summary

Issues:
1. Bogus purchases addition in ITA No.763/PUN/2017 for A.Y. 2010-11.
2. Penalty u/s.271(1)(c) in ITA No.764/PUN/2017 for A.Y. 2010-11.

ITA No.763/PUN/2017 - Bogus Purchases Addition:
The appeal arose from the Ld. CIT(Appeals) confirming the addition of ?46,33,142 as bogus purchases made by the assessee, a manufacturer of auto components. The Assessing Officer had treated purchases from a specific entity as bogus. During the hearing, the Ld. DR highlighted the importance of determining the difference in gross profit rate between genuine and bogus purchases for making additions to the income. Citing a judgment of the Hon'ble Bombay High Court, it was emphasized that ad-hoc additions were not warranted. The ITAT, following the High Court's guidance, set aside the CIT(A) order and remanded the matter to the Assessing Officer for calculating the excess gross profit rate from bogus purchases and making additions accordingly, ensuring a fair hearing for the assessee. The appeal in ITA No.763/PUN/2017 was allowed for statistical purposes.

ITA No.764/PUN/2017 - Penalty u/s.271(1)(c):
The key issue in this appeal was the imposition of penalty u/s.271(1)(c) by the Assessing Officer and upheld by the Ld. CIT(A). As the quantum addition regarding bogus purchases was remitted back for reassessment, the Ld. DR proposed that the penalty issue should also be reconsidered by the Assessing Officer for consistency and fairness. Consequently, the ITAT set aside the CIT(A) order on the penalty issue and directed the matter to be re-examined by the Assessing Officer in conjunction with the quantum matter, ensuring due process for the assessee. The appeal in ITA No.764/PUN/2017 was allowed for statistical purposes.

In the combined result, both appeals of the assessee in ITA No.763/PUN/2017 & ITA No.764/PUN/2017 were allowed for statistical purposes, with the ITAT issuing the order on June 22, 2020.