2023 (7) TMI 1469 - HC - Income Tax

Estimation of income - bogus purchases - HELD THAT - ITAT correctly held as in agreement with the view expressed by the CIT (A) that, if the purchases are bogus, it would be impossible for the assessee to complete the business transaction and that if the purchase is bogus, the corresponding sale also must be bogus or else the transaction would be impossible to complete and as a necessary corollary, unless the corresponding sale is held to be bogus, the purchase also cannot be held to be bogus, rather it would be a case of purchase from bogus entities/parties. That view has been upheld by the Tribunal in principal while dismissing the appeal of the Revenue. Calculation of gross profit ratio and addition in the gross profit ratio - We find that the Tribunal has not addressed the issue of adopting the gross profit rate of 5% on the alleged Hawala purchase of Rs.2.45 crores as against the rate of 0.69% declared by the assessee, despite the fact that the CIT (A) had specifically gone into that question and had directed the AO to make 5% addition in the gross profit ratio, while deleting the balance addition. We, therefore, deem it appropriate to remand the matter back to the Tribunal only to the limited extent of going into that issue.

Summary

Issues:
1. Justification of directing deletion of addition made on account of bogus purchase by ITAT.
2. Burden of proof on the assessee regarding the veracity of impugned purchases.
3. Availability of parties for confirmation of impugned purchases.
4. Compliance with the Supreme Court judgment regarding restriction of addition made on account of bogus purchases.
5. Calculation of gross profit ratio and addition in the gross profit ratio.

Analysis:
The judgment by the Bombay High Court involved multiple issues arising from an order passed by the Income Tax Appellate Tribunal (ITAT) concerning three Assessment Years. The primary contention revolved around the ITAT's decision to direct the deletion of an addition made on account of alleged bogus purchases. The Court considered whether the ITAT was justified in its direction despite credible information from the Sales Tax Department and the assessee's failure to substantiate the purchases during assessment proceedings. The Court also examined the burden of proof on the assessee and the availability of parties for confirmation of the impugned purchases.

Furthermore, the Court analyzed compliance with a Supreme Court judgment regarding the restriction of additions made on account of bogus purchases. It was noted that the ITAT had not addressed the issue of adopting a 5% gross profit rate on the alleged Hawala purchase, deviating from the rate declared by the assessee. As a result, the Court remanded the matter back to the Tribunal to address this specific issue, emphasizing the need for a thorough examination.

The judgment highlighted the importance of establishing the veracity of transactions and the corresponding sales to determine the legitimacy of purchases. The Court agreed with the view that if purchases were bogus, completing business transactions would be impossible without corresponding bogus sales. Ultimately, the Court concluded that the questions of law proposed in the appeal did not present substantial legal issues, except for the specific matter related to the gross profit ratio calculation.

In conclusion, the Court disposed of the appeals, remanding the matter back to the Tribunal for further consideration on the issue of the gross profit ratio calculation. The decision in one appeal was to apply to another appeal mutatis mutandis, ensuring consistency in the resolution of the issues across the cases.