2023 (7) TMI 338 - AT - Income Tax

Estimation of income - Addition u/s 69C - bogus purchases - non rejecting of books of accounts - HELD THAT - Profit made by the assessee in this case i.e. by procuring the goods at a discounted value from the open/grey market can safely be determined by bringing the G.P rate of such bogus purchases at the same rate as that of the other genuine purchases. Thus, restore the matter to the file of the A.O, with a direction to him to restrict the addition in the hands of the assessee qua the impugned bogus/unverified purchases by bringing the GP rate of such bogus purchases at the same rate as that of the other genuine purchases. Appeal of the assessee is allowed for statistical purposes

Summary

Issues:
The issues involved in the judgment are:
1. Addition of Rs. 26,88,000 u/s 69C of the Income-tax Act, 1961.
2. Disallowance of Rs. 26,88,000 made on account of bogus purchases.

Issue 1: Addition u/s 69C of the Income-tax Act, 1961:
The assessee's appeal challenged the addition of Rs. 26,88,000 under section 69C of the Income-tax Act, 1961. The case was selected for scrutiny assessment u/s. 143(2) of the Act based on information regarding bogus purchase bills. The AO reopened the case u/s. 147 of the Act as the assessee failed to comply with the notice. The AO made the addition of the entire amount of bogus purchases u/s. 69C of the Act. The CIT(A) upheld this decision, leading to the appeal before the ITAT.

Issue 2: Disallowance of Bogus Purchases:
The appeal also contested the disallowance of Rs. 26,88,000 on account of bogus purchases. The assessee, engaged in custom milling of rice and paddy, had filed its return of income for A.Y. 2013-14. The AO found that the assessee had failed to substantiate the authenticity of purchases made from a bogus entity, M/s. Shri Khand Agrotech. The assessee argued that the disallowance was made mechanically without considering evidence and without rejecting the books of account.

Judgment Summary:
The ITAT, after hearing both parties, found that the assessee had failed to prove the authenticity of the purchases from M/s. Shri Khand Agrotech. The AO had not rejected the books of account but had rightly treated the purchases as bogus based on evidence. However, considering the totality of facts, the ITAT concluded that the assessee had procured goods from the open market at a discounted rate and recorded them through bogus bills. The ITAT referred to a High Court decision to determine the profit the assessee would have made by procuring goods at a discounted value. Consequently, the ITAT directed the AO to restrict the addition by bringing the GP rate of bogus purchases at the same rate as genuine purchases.

Therefore, the ITAT allowed the appeal for statistical purposes, directing the AO to reevaluate the addition in light of the observations made, ensuring a fair opportunity for the assessee.