2024 (4) TMI 882 - AT - Income Tax

Estimation of income - bogus purchases - CIT(A) confirmed disallowance/ addition to the extent of 12.5% - HELD THAT - As apparent that assessee has purchased material from party A and procured bogus bills of the same material from party B. In this circumstance all the judicial precedents cited before us shows that only profit element embedded therein should be added. Therefore AR has submitted that the profit element in case of assessee in Steel and Pipe business is merely 2 to 3 %. Therefore over and above the normal profit earned by the assessee there are certain other expenses and credit of the taxes and duties which is required to be added to the total income of the assessee. We deem it appropriate and fit to adopt the addition to the extent of 4% of bogus purchases in the hands of the assessee. Appeal of the assessee is partly allowed.

Summary

Issues involved:
The judgment involves issues related to reopening of assessment u/s 147, disallowance of alleged bogus purchases, charging of interest u/s 234, and initiation of penalty u/s 271(1)(c).

Reopening of assessment u/s 147:
The appellant contested the reopening of assessment u/s 147, arguing that it was based on a change of opinion and lacked proper reasons. The Commissioner of Income Tax (A) confirmed the disallowance of a portion of alleged bogus purchases. The appellant challenged this decision, asserting that the purchases were genuine and supported by proper documentation. The Assessing Officer, however, relied on information from the Sales Tax Department to deem the purchases as bogus. The appellant provided detailed quantity and quality-wise information to prove the genuineness of the purchases. After considering various judicial precedents, the Tribunal decided to add only the profit element to the total income. The addition was calculated at 4% of the alleged bogus purchases, leading to a confirmed addition of &8377; 7,74,468.

Disallowance of alleged bogus purchases:
The appellant, a trading company, faced disallowance of a portion of alleged bogus purchases amounting to &8377; 1,93,61,702. The Assessing Officer rejected the appellant's contentions and added the entire amount to the total income. On appeal, the CIT (A) restricted the disallowance to 12.5% of the bogus purchases, considering only the profit element. The appellant challenged this decision, citing precedents that directed the addition of gross profit rate for genuine purchases. The Departmental Representative referred to other cases where additions were restricted to 8% or 12.5%. The Tribunal, after thorough consideration, decided to confirm an addition of &8377; 7,74,468, representing 4% of the alleged bogus purchases, and directed the Assessing Officer to retain this addition.

Charging of interest u/s 234 and initiation of penalty u/s 271(1)(c):
The Assessing Officer charged interest u/s 234 and initiated penalty proceedings u/s 271(1)(c) against the appellant. However, the judgment primarily focused on the disallowance of alleged bogus purchases and the subsequent addition to the total income, which was addressed by the Tribunal's decision to confirm a partial addition based on the profit element.

This summary provides a detailed overview of the judgment, highlighting the key issues, arguments presented, decisions made, and the final outcome for each issue involved in the case.