2020 (10) TMI 95 - HC - Income Tax

Estimation of income - bogus purchases to the extent of 5% - information received from the Maharashtra Sales Tax Department that the assessee had made bogus purchases - reopening of assessment - HELD THAT - If the Appellate Tribunal in the overall facts of the case and having regard to the materials on record thought fit to make ad hoc addition at the rate of 5% of such purchases, then, the Tribunal could not be said to have committed any serious error warranting any interference in this appeal. No substantial question of law.

Summary

Issues:
1. Appeal against the order of the Income Tax Appellate Tribunal regarding addition of bogus purchases to total income.
2. Dismissal of appeal by Commissioner of Income Tax (A) and partial allowance by Appellate Tribunal.
3. Whether the Appellate Tribunal erred in restricting the addition of bogus purchases to 5% despite lack of establishment of purchase genuineness.

Analysis:

Issue 1:
The Tax Appeal under Section 260A of the Income Tax Act, 1961 was filed by the Revenue against the order passed by the Income Tax Appellate Tribunal, Ahmedabad, regarding the addition of ?55,61,085 made on account of bogus purchases to the total income of the assessee for the Assessment Year 2011-12.

Issue 2:
The assessee, dissatisfied with the assessment order, appealed before the Commissioner of Income Tax (A) who dismissed the appeal. Subsequently, the assessee appealed before the Appellate Tribunal which partly allowed the appeal by making an ad hoc addition at the rate of 5% of the bogus purchases, aiming to end the ongoing dispute.

Issue 3:
The key question raised was whether the Appellate Tribunal erred in law and on facts by limiting the addition of ?55,61,085 made on account of bogus purchases to 5% of the total bogus purchases, despite the failure of the assessee to establish the genuineness of the purchases. The Tribunal justified its decision by considering the sales made against the purchases, the absence of defects in the books of accounts, and the prevailing practice in business industries to purchase goods from the grey market.

The Tribunal noted that the assessee had declared the GP in its books of accounts, yet to prevent revenue leakage, an ad hoc addition of 5% of such purchases was deemed appropriate. The Tribunal drew support from a previous judgment and concluded that the ad hoc addition was fair and reasonable under the circumstances.

In the final judgment, the Court upheld the decision of the Appellate Tribunal, stating that the question proposed by the Revenue did not qualify as a substantial question of law. Consequently, the appeal was dismissed.

This detailed analysis provides insight into the legal proceedings, the reasoning behind the decisions made at each level, and the final judgment delivered by the High Court, ensuring a comprehensive understanding of the case.