2024 (6) TMI 1368 - AT - Income Tax

Estimation of income - bogus purchases - CIT(A) reduced the addition to 12.5% - HELD THAT - Undoubtedly, the assessee could not prove the genuineness of the purchases which are found in the information received from the DGIT Investigation. However, the purchase of ₹ 42,32,703, were shown by the assessee by a chart showing that the purchases from these parties have also gone into sales of the equal quantity. The assessee has also got his account tax audited where the quantitative details are available. In such circumstances, it is settled principle that only profit which is less than the profit shown on untained purchases should be compared and difference is required to be added to the total income of the assessee. Hon'ble Bombay High Court in M/s Mohd. Haji and Company 2019 (2) TMI 1632 - BOMBAY HIGH COURT has also upheld the same principle. In the present case, the assessee has also shown one to one co-relation between the quantity of the alleged bogus purchases and consequent sales accounted there from. We direct the AO to work out the addition only to the extent of the difference in gross profit earned in such tainted purchases with gross profit earned in untainted purchases. The assessee is directed to furnish the requisite information before the AO demonstrate the gross profit of bogus purchases and gross profit of required basis. Appeal filed by AO is dismissed.

Summary

Issues:
1. Reassessment order challenge by Income Tax Officer.
2. Alleged bogus purchases and addition to income.
3. Reopening of assessment challenged by assessee.

Issue 1: Reassessment Order Challenge
The appeal was filed by the Income Tax Officer against the appellate order passed by the National Faceless Appeal Centre, Delhi for the assessment year 2009-10. The appeal challenged the reassessment order passed under Section 147 read with section 143(3) of the Income-tax Act. The assessee also filed a cross objection challenging the addition of 12.5% on alleged bogus purchases upheld by the appellate authority.

Issue 2: Alleged Bogus Purchases and Income Addition
The case involved an individual engaged in trading ferrous and non-ferrous metals. The assessee's return of income was processed under Section 143(1) of the Act. The Income Tax Officer made an addition to the total income of the assessee based on information received regarding alleged bogus purchases. The assessee failed to prove the genuineness of the purchases, leading to the addition of 25% of the bogus purchases amounting to a specific sum. The appellate authority reduced the addition to 12.5% of the alleged bogus purchases, confirming an addition to the income. The Tribunal directed the Assessing Officer to calculate the addition based on the difference in gross profit earned from tainted and untainted purchases.

Issue 3: Reopening of Assessment
The assessee challenged the reopening of the assessment along with the addition to income. The learned CIT (A) confirmed the reopening of the assessment. The Tribunal dismissed the appeal filed by the Income Tax Officer and allowed the cross objection of the assessee to the extent of directing the Assessing Officer to calculate the addition based on the difference in gross profit earned from the alleged bogus purchases.

In conclusion, the Tribunal's judgment focused on the genuineness of alleged bogus purchases, the calculation of income addition, and the reopening of the assessment. The decision provided guidance on determining additions to income based on the difference in gross profit earned from tainted and untainted purchases, following legal precedents and settled principles.