2023 (6) TMI 1123 - AT - Income Tax

Estimation of income - Unexplained expenditure on bogus purchases u/s. 69C - addition of 2% of said amount on account of commission paid for obtaining accommodation entry - main contention of assessee is that the AO have not rejected books of accounts of assessee and therefore no addition can be made on estimation basis, Also even if the purchases are treated as bogus as the assessee did not sold the stock purchased during relevant period and same was shown as including in the closing stock as on 31.03.2010 - HELD THAT - When the purchases have been shown in the books of accounts and the stock/goods purchases was remained unsold in the end of financial period thus including in the closing stock then no profit was flowing from such transaction if it is gathered that the Assessing Officer alleged the same as bogus purchases. When the goods is physically available and shown in the stock register of assessee and even the assessee did not pay any sale consideration during the relevant financial period, in such a situation we are unable to see any accruing of any benefit or profit to the assessee which may attract charging provisions of tax. To cover up all possible leakage of revenue we find it appropriate to follow the preposition rendered in the case of PCIT vs. Mohd. Hazi Adam 2019 (2) TMI 1632 - BOMBAY HIGH COURT and restrict the addition to the element of profit embedded therein. Restrict the addition to the tune of 8% of total impugned sales which is sufficient to cover all possible leakage of revenue. Accordingly, additions upheld by the CIT(A) are substituted by the 8% of total alleged purchases. Accordingly, the grounds of assessee are partly allowed.

Summary

Issues involved:
The judgment addresses the issues of sustaining additions made by the Assessing Officer related to alleged bogus purchases, commission payments, and unexplained expenditures. The key issues include the justification of sustaining 25% of the addition made by the Assessing Officer, the legitimacy of additions on account of alleged bogus purchases, and the presumption of commission payments for accommodation entries.

Sustaining 25% of addition made by Assessing Officer:
The appeal challenged the decision of the CIT(A) in upholding 25% of the addition made by the Assessing Officer, amounting to Rs. 7,67,025, based on purchases made from a specific entity. The appellant argued that the books of accounts were not rejected by the Assessing Officer, and therefore, the addition was not sustainable, citing relevant judgments to support their position.

Alleged bogus purchases from specific entity:
The appellant contested the addition made by the Assessing Officer on account of alleged bogus purchases from a particular entity. They presented evidence, including stock summaries and ledger accounts, to demonstrate that the purchased goods remained unsold at the end of the financial period, and thus, no profit should be attributed to these transactions. The appellant also referred to precedents to support their stance.

Presumption of commission payments for accommodation entries:
Regarding the addition of Rs. 61,362 on the presumption of commission payments for arranging accommodation entries, the appellant argued against the CIT(A)'s decision to uphold this addition. They emphasized that no benefit or profit accrued from these transactions, as evidenced by the goods remaining unsold and included in the closing stock. The judgment considered the factual position and rival submissions to restrict the addition to cover possible revenue leakage.

Conclusion:
The Tribunal partly allowed the appeal, substituting the additions upheld by the CIT(A) with a restricted addition of 8% of the total alleged purchases to address potential revenue leakage. The judgment emphasized the importance of factual evidence and the lack of valid reasons for certain additions, ultimately ruling in favor of the appellant to some extent.