2024 (8) TMI 41 - AT - Income Tax

Bogus purchases - as stated assessee has purchased goods from allegedly bogus suppliers but has enough evidences to show the genuineness of the purchases - HELD THAT - When the parties are mentioned into the bogus hawala racket of Maharashtra sales tax authorities and informed to the assessing officer by the director-general of investigation, Mumbai, we find that the genuineness of the purchases cannot be accepted. However even if the genuineness of the purchases cannot be accepted, then the natural course would be to make an addition to the extent of the profit involved in such bogus purchases which is less than the net profit shown from genuine purchases. This is so because the intention of the bogus purchases would be to reduce the profits of the assessee. By this mechanism the profits of the assessee are taxed from tainted purchases to the extent of profit on by the assessee from one tainted purchases. This is also the mandate of the decision of Mohammad Haji Adam Co. 2019 (2) TMI 1632 - BOMBAY HIGH COURT Thus, we direct AO to tax amount of profit out of the above bogus purchases. The assessee is directed to furnish such information within 90 days from the date of this order to the learned assessing officer, the learned AO after examination, may confirm the addition to the extent of difference in the gross profit as held by the honourable Bombay High Court. 2019 (2) TMI 1632 - BOMBAY HIGH COURT Appeal of the assessee is partly allowed.

Summary

Issues:
Assessment of bogus purchases, Delay in filing appeal, Genuineness of purchases, Addition of income, Ex parte order, Taxation of profit from bogus purchases.

Assessment of Bogus Purchases:
The appeal was filed against the appellate order dismissing the appeal against the assessment order that added Rs. 968,724 under section 69C of the Income Tax Act. The assessing officer determined the total income at Rs. 1,202,358 due to alleged accommodation bills from two parties. The assessee failed to justify the genuineness of the purchases, leading to the addition. The CIT-A dismissed the appeal due to a delay, as it was filed beyond the statutory time limit. The assessee contended that the appeal was delayed due to the previous accountant's ignorance. Despite multiple notices, the CIT-A decided the appeal ex parte, confirming the addition.

Genuineness of Purchases:
The assessee argued before the ITAT that the purchases were genuine, supported by invoices, payments through account paychecks, audited books of accounts, and stock registers. The departmental representative contended that the assessing officer lacked details and the assessee's non-appearance before the CIT-A invalidated the evidence. The ITAT reviewed the lower authorities' orders and found the assessee benefited from bogus purchases, leading to the addition. The ITAT noted that despite the genuineness claimed by the assessee, the involvement of the suppliers in a bogus hawala racket undermined the purchases' authenticity.

Taxation of Profit from Bogus Purchases:
The ITAT directed the assessing officer to tax the profit from the bogus purchases in line with the Bombay High Court decision in Mohammad Haji Adam & Co. The ITAT instructed the assessee to provide necessary information within 90 days for the AO to confirm the addition based on the profit from tainted purchases. The ITAT ordered the AO to delete the addition of bogus purchases made at 100% and retain the net profit from the differential amount, aligning with the High Court's decision.

This detailed analysis covers the issues of assessment of bogus purchases, delay in filing the appeal, the genuineness of purchases, addition of income, ex parte order, and the taxation of profit from bogus purchases as addressed in the ITAT Mumbai judgment.