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2024 (4) TMI 803 - AT - Income TaxEstimation of income - bogus purchases - quantification of profit - Rejection of books of accounts - HELD THAT - Admittedly the addition in the hands of the assessee is liable to be restricted only to the extent of the profit which he would have made by procuring the goods at a discounted value from the open/grey market as against the inflated value at which he had recorded the same on the basis of bogus bills in his books of account. In so far the issue of quantification of profit which the assessee would have made by procuring the goods in question from the open/grey market is concerned, we find that the Hon ble High Court of Bombay in the case of Pr. Commissioner of Income Tax-17 Vs. M/s. Mohhomad Haji Adam Company 2019 (2) TMI 1632 - BOMBAY HIGH COURT had observed, that the addition in the hands of the assessee as regards the bogus/unproved purchases was to be made to the extent of bringing the G.P rate of such purchases at the same rate of other genuine purchases As identical facts the issue to the extent of quantification of the profit element in case of bogus/unverified purchases had come up in the case of M/s. Gopal Rice Industries 2023 (1) TMI 363 - ITAT RAIPUR wherein restrict the addition in the hands of the assessee qua the impugned bogus/unverified purchased by bringing the GP rate of such bogus purchases at the same rate as that of the other genuine purchases. Thus we restore the matter to the file of the A.O, with a direction to him to restrict the addition in the hands of the assessee qua the impugned bogus/unverified purchases by bringing the GP rate of such bogus purchases at the same rate as that of the other genuine purchases. Appeal of the assessee company is allowed for statistical purposes
Issues Involved:
1. Validity of jurisdiction assumed by the A.O for framing the assessment without issuing a valid notice u/s 143(2). 2. Disallowance of Rs. 55,36,900/- made by the A.O after rejecting books of account u/s 145(3) and taking a rate of 25% on alleged bogus purchases of Rs. 2,21,47,600/-. 3. Adhoc disallowance of Rs. 12,064/- made out of "Fuel Expenses". Summary: Issue 1: Validity of Jurisdiction Assumed by the A.O The assessee claimed that the jurisdiction assumed by the ITO, Ward-Mahasamund was invalid due to an unsigned notice issued u/s 143(2) of the Act dated 25.09.2017. However, upon review, it was found that the notice was duly signed by the Officer, Shri Mahendra Kumar, ITO, Ward-Mahasamund. Consequently, the claim of the assessee was rejected, and Ground of Appeal No.1 was dismissed as devoid of merit. Issue 2: Disallowance of Rs. 55,36,900/- for Alleged Bogus PurchasesThe A.O observed that the assessee had claimed purchases from five tainted parties amounting to Rs. 2,21,47,600/-. The purchases were found to be bogus based on survey operations u/s 133A, statements recorded u/s 131, and other incriminating evidence. The A.O rejected the books of accounts u/s 145(3) and disallowed 25% of the value of bogus purchases, making an addition of Rs. 55,36,900/- to the assessee's returned income. The CIT(Appeals) confirmed the disallowance. Upon review, it was concluded that the assessee failed to substantiate the authenticity of the purchases. However, the Tribunal found that the A.O had not provided a cogent reason for the 25% disallowance rate. Referring to the judgment of the Hon'ble High Court of Bombay in the case of Pr. Commissioner of Income Tax-17 Vs. M/s. Mohhomad Haji Adam & Company, the Tribunal directed the A.O to restrict the addition by bringing the G.P rate of such bogus purchases at the same rate as that of other genuine purchases. The matter was restored to the file of the A.O for re-quantification based on this principle. Issue 3: Adhoc Disallowance of Rs. 12,064/- for "Fuel Expenses"No contentions were discernible from the written submissions regarding the adhoc disallowance of Rs. 12,064/-. Therefore, Ground of Appeal No.3 was dismissed as not pressed. Conclusion:The appeal of the assessee was allowed for statistical purposes concerning the disallowance of Rs. 55,36,900/-, with directions to the A.O to re-quantify the addition. The other grounds were dismissed. Order Pronounced:Order pronounced in open court on 18th day of April, 2024.
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