2024 (4) TMI 981 - AT - Income Tax

Estimation of income - bogus purchases - CIT-A made the addition differently by considering the rate of the carrots purchased from one bogus supplier with the rates of another bogus supplier and the difference amount is confirmed and addition on account of bogus purchases HELD THAT - We do not agree with the approach of the CIT- A because when both the suppliers are allegedly bogus, rates paid to one party cannot be compared with rates paid to another bogus party for the reason that both are tainted transactions. We find that in the present case the decision of Mohd haji Adam 2019 (2) TMI 1632 - BOMBAY HIGH COURT also does not apply for the reason that honourable High Court held that where there was no discrepancy between purchases shown by assessee and sales declared, no question of law or on form Tribunals order restricting addition made by AO on account of bogus purchase by bringing gross profit rate on purchases at same rate as applied in other genuine purchases. In this case there are no genuine purchases. The other judicial precedents relied upon by the assessee are also considered where varying rates of additions are confirmed depending on the facts and circumstances of the case of each of the assessee in the range of 1%- 12.5 % . Therefore, in absence of similar facts, those cannot be applied blindly. As stated above the facts in the case of the assessee are unique where only alleged bogus purchases of diamonds are exported in the same quantity and there are no other genuine purchase transactions. Therefore, only the facts in the case of the assessee in earlier years could be a guiding factor. In the case of the assessee in earlier years assessment year 2008 09 and 2007 08 CIT A has restricted the addition to the extent of 3% of the bogus purchases which is not disputed by the revenue, therefore, we also find it reasonable to retain the addition to the extent of 3% of the bogus purchases. Accordingly, appeal of the assessee is partly allowed.

Summary

Issues involved:
The issues involved in this case include the addition/disallowance of alleged bogus purchases, application of section 69C for unexplained expenditure, estimation of profit percentage, and comparison of purchase rates from different suppliers.

Addition/Disallowance of Alleged Bogus Purchases:
The appeal was filed against the appellate order partially allowing the appeal against the assessment order under section 143(3) u/s 147. The appellant challenged the addition of Rs. 32,08,953 for alleged bogus purchases, citing a binding judgment of the Bombay High Court. The appellant argued that the addition was made solely based on a third party statement without providing an opportunity for cross-examination. Despite evidence supporting the purchases in the audited books, the addition was upheld, leading to the appeal.

Application of Section 69C for Unexplained Expenditure:
The appellant contended that the addition under section 69C for unexplained expenditure was unjustified as the transactions were recorded in the audited books of account and payments were made through banking channels. The appellant emphasized the genuineness of the transactions and challenged the basis for the addition, which was deemed to be purely speculative.

Estimation of Profit Percentage:
The dispute involved the assessment of the appellant's gross profit percentage, which was deemed meagre by the CIT-A. The appellant argued that the diamond trading sector's profitability ranges from 1% to 3%, justifying the reported 12.64% gross profit. The appellant highlighted discrepancies in the CIT-A's method of calculating the addition and referenced industry reports to support their profit margin.

Comparison of Purchase Rates from Different Suppliers:
The CIT-A's decision to compare purchase rates from different suppliers and make additions based on this comparison was challenged by the appellant. The appellant argued that such comparisons were not valid as both suppliers were alleged to be bogus, rendering the approach flawed. The appellant cited previous judgments and unique circumstances of the case to support their contention.