2024 (8) TMI 1239 - AT - Income Tax

Estimation of income - bogus purchases - HELD THAT - When the revenue has made the addition to the extent of only 3% on bogus purchases for same parties in different years, there is no reason to make 100% addition on the alleged bogus purchases in the year under consideration. We, accordingly, direct the AO to reduce the addition to 3% of the total impugned purchases - Appeals of the assessee and revenue are partly allowed.

Summary

Issues:
1. Reopening of assessment proceedings under section 143(3) read with section 147 of the Income Tax Act, 1961.
2. Addition of alleged bogus purchases based on unsubstantiated information.
3. Denial of opportunity to cross-examine evidence/persons.
4. Denial of reasonable opportunity to present the case.
5. Validity of the order under section 143(3) read with section 147 of the Act.
6. Modus operandi of bogus transactions for tax evasion.
7. Restriction of addition to 25% of alleged bogus purchases.
8. Application of profit margin in similar cases.
9. Reduction of addition based on previous year's assessment.

Analysis:
1. The judgment involves cross-appeals filed by the assessee and the revenue against the order of the Commissioner of Income-tax (Appeals) for Assessment Year 2012-13, challenging the reopening of assessment proceedings under section 143(3) read with section 147 of the Income Tax Act, 1961. The assessee argued that the reopening was without jurisdiction and illegal, questioning the validity of the order.

2. The dispute also revolves around the addition of 25% of alleged bogus purchases of Rs. 7,20,30,027, based on unsubstantiated information received by the Income Tax Officer. The assessee contended that they were denied the opportunity to cross-examine the evidence or persons on which the addition was directed, leading to a lack of a reasonable opportunity to present their case.

3. The revenue raised concerns about the modus operandi of the bogus transactions, emphasizing that such transactions were not for commercial purposes but to evade taxes. The Commissioner of Income-tax (Appeals) had restricted the addition to Rs. 180,07,506, being 25% of the alleged bogus purchases, which the revenue contested.

4. The judgment highlighted the application of profit margin in similar cases, where in previous assessments, only 3% of alleged bogus purchases were added. This led to a direction to reduce the addition to 3% of the total impugned purchases of Rs. 7,20,30,027, based on the principle of consistency in treatment across different years.

5. Ultimately, the appeals of both the assessee and the revenue were partly allowed, with the reduction of the addition to 3% of the total alleged bogus purchases, in line with previous assessments. The judgment aimed to ensure fairness and consistency in the treatment of such cases, balancing the interests of both parties involved in the dispute.