2023 (9) TMI 1604 - AT - Income Tax

Estimation of income - Addition made u/s 69C - towards purchases made based on peak credit - assessee is a partnership firm and is involved in the business activity of trading in iron and steel - HELD THAT - We notice that the SMC bench in assessee's own case for AY 2009-04 in the appeal filed against order of the assessing officer u/s 143(3) has held 4% of the gross turnover as an addition towards the bogus purchases by applying the ratio of JK Surface Coatings Pvt Ltd . 2021 (10) TMI 1323 - BOMBAY HIGH COURT From the perusal of the order of the coordinate bench it is clear that the issue of bogus purchases have already been considered under regular assessment. Accordingly in our view, there is merit in the contention of the AR that the initiation of reassessment is merely a change of opinion and that no addition can be made in the reassessment for the same purchases. Considering the fact that the impugned purchases have already been considered during the assessment u/s 143(3) and that the SMC bench of the Tribunal has held 4% to be the GP rate that is to be applied on gross turnover for addition towards bogus purchases, we hold that the addition based on peak credit of purchases under section 69C in the assessment u/s 147 is not tenable. Gross profit ratio in the alleged non genuine purchases - In assessee's case, it was submitted before the assessing officer that the alleged bogus purchases have been recorded in the books including the stock register and that the sales out of the said purchases have also been recorded as turnover. Therefore we tend to agree with the contention that the addition should be made based on the gross profit ratio. Considering the above decision of case of Mohammed Haji Adam Co 2019 (2) TMI 1632 - BOMBAY HIGH COURT and the decision of the SMC bench in assessee's own case for AY 2009-10 we are of the view the percentage of GP considered while deciding the appeal for assessment year 2009-10 shall apply mutatis mutandis to this appeal also. Therefore we hold that a GP ratio of 4% to be applied on gross turnover as addition towards bogus purchases.

Summary

Issues:
1. Addition under section 69C of the Act towards purchases made based on peak credit.
2. Reopening of assessment under section 147 for the same purchases already considered under section 143(3).
3. Disallowance of peak credit of cumulative purchases under section 69C for assessment year 2010-11.

Detailed Analysis:
1. The judgment deals with appeals against the addition made under section 69C of the Income Tax Act towards purchases based on peak credit for assessment years 2009-10 and 2010-11. The assessee, a partnership firm trading in iron and steel, faced scrutiny where the Assessing Officer disallowed purchases amounting to Rs. 3,47,99,999/- for AY 2009-10 and Rs. 1,33,49,985/- for AY 2010-11. The CIT(A) confirmed the additions, leading to appeals before the Tribunal.

2. In the case of AY 2009-10, the Assessing Officer reopened the assessment under section 147, claiming the purchases were bogus based on a survey. The Tribunal noted that the issue of bogus purchases had been considered in the regular assessment under section 143(3). The Tribunal held that the reassessment was a mere change of opinion, deleting the addition under section 69C as it was already considered during the initial assessment.

3. For AY 2010-11, the Assessing Officer disallowed peak purchases of Rs. 1,33,49,985/- under section 69C. The Tribunal, referring to a High Court judgment, held that the gross profit ratio for alleged non-genuine purchases should be restricted to the rate of genuine purchases. The Tribunal applied a 4% GP ratio, similar to the AY 2009-10 decision, directing the Assessing Officer accordingly. The appeal for AY 2009-10 was allowed, and the appeal for AY 2010-11 was partly allowed.

In conclusion, the Tribunal ruled in favor of the assessee, deleting the additions made under section 69C for both assessment years based on the principles of gross profit ratio and the inadmissibility of reassessment for the same issues already addressed in the initial assessment.