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2022 (10) TMI 173 - HC - Income TaxEstimation of income - Bogus purchases - HELD THAT - Transaction was not verifiable only the income component, could be taxed and not the entire transaction amount. It was also held that it was undisputed that the sale proceeds of the goods had been duly accounted for in the books and offered to tax, hence, the entire purchase amount could not have been added in the present case and that with a view to plug any revenue leakage in the aforementioned circumstances, disallowance of @12.5% was held to be reasonable to safeguard the interest of revenue. As confirmed the addition to the extent of 12.5% of the alleged purchases - The order of CIT (Appeals) was challenged before the Tribunal vide its order dated 03rd May, 2017, dismissed the same. It was held that without purchasing materials and goods, it would not have been possible on the part of the assessee to execute the contract work with the MCGM, which is a Government Authority. Also held that the A.O. had not disputed the turnover of the contract work executed by the assessee and that unless the assessee procured the materials and goods, if not from the declared sources but from some other sources, it would not be possible on the part of the assessee to execute work awarded by MCGM. The Tribunal, therefore, held that the entire purchase made by the assessee could not be added back as income, but only proft element embedded therein, be treated as income of the assessee.
Issues:
1. Interpretation of Income Tax Act, 1961 regarding treatment of alleged bogus purchases. 2. Consideration of previous judicial decisions by Hon'ble Supreme Court and High Courts. 3. Assessment of the evidence provided by the appellant regarding the purchases. 4. Determination of the extent of disallowance in the case of alleged bogus purchases. Analysis: 1. The appeal was filed against the order of the Income Tax Appellate Tribunal (ITAT) regarding the assessment year 2009-10 under Section 260A of the Income Tax Act, 1961. The appellant raised questions challenging the ITAT's decision on the treatment of alleged bogus purchases, citing the Hon'ble Supreme Court's judgment in a similar case and the findings of the Hon'ble Ahmedabad High Court. The appellant argued that the ITAT erred in not considering these precedents while making its decision. 2. The appellant contended that the ITAT overlooked the judgments of the Hon'ble Supreme Court and the Hon'ble Ahmedabad High Court, which held that once suppliers are deemed bogus, taxing only a portion of the claimed amount is incorrect. The appellant also highlighted the findings of the Assessing Officer (AO) and higher appellate authorities regarding the bogus nature of the suppliers. The appellant argued that the ITAT erred in upholding the CIT(A)'s decision to limit the disallowance to 12.5% without proper verification of the material sourced and its movement during the year. 3. The material facts of the case revealed that the appellant was engaged in civil contract works primarily with the Municipal Corporation of Greater Mumbai. The assessment was reopened based on information from the Sales Tax Department, alleging that the appellant made accommodation entries for purchases. The AO added the entire amount of alleged bogus purchases to the appellant's income under Section 69C. The CIT(A) partially allowed the appeal, considering the evidence of banking transactions and ledger statements provided by the appellant. The CIT(A) concluded that only the income component, not the entire transaction amount, should be taxed. 4. The Tribunal upheld the CIT(A)'s decision, emphasizing that without procuring materials, the appellant could not have executed the contract work. The Tribunal reasoned that only the profit element embedded in the alleged bogus purchases should be treated as income. The High Court affirmed the Tribunal's order, stating that it considered all relevant facts and did not find any substantial questions of law warranting interference. The Respondent's cross objections were disposed of accordingly. This detailed analysis outlines the key legal issues, arguments presented by the parties, and the court's reasoning leading to the dismissal of the appeal.
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