2023 (7) TMI 285 - HC - Income Tax

Estimation of income - bogus purchases - Tribunal reducing the addition to 8% of the value of the tainted purchases as against 12% of the same as held by the CIT(A) - HELD THAT - What is sufficient reason would vary from case to case, we are satisfied that what has weighed in the mind of ITAT is that assessee had already declared 7.5% as gross profit. Of course, assessee had taken a stand that deference between 12% and 7.5% should be sustained and gross profit of 4.5% be applied. It is this proposal, we feel, made ITAT come to a mid figure of 8%. These are all calculations arrived at on the basis of the facts before ITAT and what is argued before the ITAT. What would be actual profit margin in the business that the assessee was carrying on and the matter of calculation before the concerned authority, whether the purchases were bogus and the parties from whom such purchases were allegedly made were bogus are essentially questions of fact for which evidence will have to be led. No substantial question of law arises.

Summary

Issues involved: Appeal against ITAT order reducing addition towards gross profit on bogus purchases from 12% to 8% for Assessment Year 2010-11.

Issue 1: Whether ITAT order was perverse in not providing reasons for agreeing with CIT(A)'s decision.
The Appellant's Counsel argued that ITAT order lacked reasoning for reducing the profit percentage. The Court noted that the ITAT considered the Appellant's declaration of 7.5% gross profit and proposed a mid figure of 8% based on calculations and arguments presented.

Issue 2: Whether ITAT was justified in reducing the addition to 8% instead of 12% as decided by CIT(A).
The AO found certain parties providing accommodation entries for bogus purchases, leading to doubts about the genuineness of purchases. CIT(A) determined 12% as the appropriate gross profit to be added to the income. ITAT partially allowed the appeal and reduced the gross profit percentage to 8% without detailed reasoning.

Issue 3: Whether ITAT correctly ignored the decision of the Gujarat High Court in N.K. Proteins.
The Court observed that the ITAT's decision was based on the specific facts and arguments presented in the case, and the determination of actual profit margin and genuineness of purchases are factual questions requiring evidence.

The AO did not dispute the actual purchases but questioned their source. CIT(A) decided to add only the profit element of the purchases to the income, based on the Gujarat High Court judgment. ITAT reduced the gross profit percentage without detailed explanation, considering the Appellant's declaration and arguments. The Court held that the determination of profit margin and genuineness of purchases are factual matters requiring evidence, and no substantial question of law arose. The appeal was dismissed.