2024 (3) TMI 1074 - AT - Income Tax

Estimation of income - Bogus purchases - CIT(A) in restricting the disallowance to 12.5% of the purchases instead of addition made by the ld. AO for the entire purchases - HELD THAT - We find that AO has made addition on account of entire purchases which is wholly unjustified, because once the source of purchases have been debited in the books of accounts and corresponding quantity of material purchased had been recorded in the books and corresponding quantity of sales has also been accepted then, it cannot be held that purchases are outside books. At the most, it could be the case of purchases made from hawala dealers for inflating the cost and suppressing GP rate. If parties have not confirmed the transaction then in such a case the principle laid down in the case of PCIT vs. Vishwashakti construction 2023 (5) TMI 278 - BOMBAY HIGH COURT wherein GP rate of 12.5% has been held to be reasonable in such cases, is applied in the present case also, then CIT (A) is justified. Decided against revenue.

Summary

Issues involved: Appeal against order dated 28/06/2023 passed by NFAC, Delhi for the quantum of assessment u/s. 143(3) for A.Y. 2010-11.

Summary:

Challenge by Revenue:
The Revenue challenged the action of the ld. CIT(A) in restricting the disallowance to 12.5% of the purchases instead of the entire amount of Rs. 14,90,401/-.

Facts and Background:
The assessee filed the return of income declaring total income of Rs. 6,96,151/- for A.Y. 2010-11. The case was reopened u/s. 147 based on information regarding a racket involving auditors issuing bogus purchases. The ld. AO added the entire amount of Rs. 14,90,401/- u/s. 69C due to non-confirmation of transactions by parties.

Decision and Reasoning:
The ld. CIT (A) restricted the addition by estimating a GP rate of 12.5% on the total bogus purchases. The ITAT found the AO's addition of the entire purchases unjustified, stating that if purchases were recorded in the books, they cannot be considered outside the books. It was suggested that the purchases may have been made from hawala dealers to inflate costs and suppress GP rate. Referring to the principle from a Bombay High Court case, a GP rate of 12.5% was deemed reasonable in such scenarios. Consequently, the appeal by Revenue was dismissed.

Result:
The appeal of the Revenue against the order was dismissed, with the decision pronounced on 21st March, 2024.