2023 (9) TMI 500 - HC - Income Tax

Estimation of income - bogus purchases - disallowance to 12.5% of unproven purchases - ITAT modified the order of CIT(A) to adopt the gross profit level, but retain the addition to the extent of 12.50% of the value of alleged bogus purchases - HELD THAT - There are innumerable judgments of this Court and other High Courts where the Courts have held that the ITAT was correct in restricting the addition limited to the extent of bringing the gross profit rate on purchases and not the entire amount paid. Since both the authorities, i.e., the CIT(A) and the ITAT have held that it is not the entire sales consideration which is to be brought to tax, but only the profit attributable on the total sales consideration which alone can be subject to income-tax, the view taken by the authorities, in our view, is a reasonable and possible view. Therefore, Appeals dismissed.

Summary

Issues involved:
The appeal filed under Section 260A of the Income Tax Act, 1961 raises questions regarding the disallowance of unproven purchases and the extent of addition made by the Assessing Officer.

Details of the Judgment:

Issue 1: Disallowance of unproven purchases
The assessee, engaged in labour works in offset printing and photo copying, faced assessments for three years due to purchases from suspicious dealers. The Assessing Officer disallowed the entire amount of purchases as 'bogus purchases'. The Commissioner of Income Tax (Appeals) partly allowed the appeal, which was further challenged by the Revenue before the Income Tax Appellate Tribunal (ITAT). The ITAT partly allowed the appeal of the Revenue, leading to the current appeal challenging the ITAT's order. The ITAT concluded that only the profit embedded in such purchases should be disallowed instead of the entire expenditure, adopting a gross profit level and retaining the addition to 12.50% of the value of alleged bogus purchases.

Issue 2: Extent of addition made by the Assessing Officer
The Assessing Officer noted the lack of evidence for transportation, receipt, and consumption of materials, with the assessee only able to produce bills and payment details. As the genuineness of purchases could not be proven with confirmation letters from suppliers or their presence before the AO, the AO disallowed the purchases. The ITAT, in agreement with the CIT(A), held that only the profit embedded in such purchases should be disallowed, adopting a gross profit level and retaining the addition to 12.50% of the value of alleged bogus purchases.

Conclusion:
The High Court upheld the view taken by the authorities that only the profit attributable to the total sales consideration should be subject to income tax, dismissing the appeals. The judgment highlighted the reasoning behind restricting the addition to the gross profit rate on purchases rather than the entire amount paid, citing numerous judgments supporting this approach.