2014 (11) TMI 1293 - HC - Income Tax

Estimation of income - bogus purchases - Tribunal assessed the disallowance at the rate of 15% - HELD THAT - The decision of this Court in the case of Sanjay Oil Cake Industries 2008 (3) TMI 323 - GUJARAT HIGH COURT will govern the issue involved in the present appeals. Tribunal has rightly assessed the disallowance at the rate of 15%. Decided in favour of the assessee.

Summary

Issues:
Challenging judgments of the Income Tax Appellate Tribunal for two separate assessment years. Substantial questions of law framed regarding alleged bogus purchases. Assessment order passed based on accounting system and inventory valuation. Disallowance of bogus purchases contested by the Revenue. Tribunal's decision on disallowance percentage. Applicability of a previous court decision on the present case.

Analysis:
The High Court of Gujarat heard appeals challenging the judgments of the Income Tax Appellate Tribunal for two different assessment years. The substantial questions of law framed pertained to the justification of restricting additions due to alleged bogus purchases. The facts revealed that the assessee, engaged in the trading business of electrical goods, filed a return of income which was initially accepted under section 143(1)(a). The assessment order was passed after issuing a notice under section 143(2) to the assessee. The accounting system adopted was mercantile, and the closing stock value was determined based on the inventory of unsold goods.

During the hearing, the advocates for both parties presented their arguments. The advocate for the Revenue sought an enhancement of disallowance on account of bogus purchases, while the Tribunal had assessed the disallowance at a rate of 15%. The Tribunal considered the nature of the business activities and confirmed the disallowance percentage after evaluating the submissions. The Court referred to a previous decision in a similar case to guide the resolution of the current appeals.

Ultimately, the Court ruled against the Revenue and in favor of the assessee, dismissing both appeals. The decision highlighted the importance of considering the nature of business activities and circumstances while determining disallowances related to alleged bogus purchases. The judgment emphasized the application of precedents to ensure a fair and reasonable outcome for both parties involved in the dispute.