2024 (9) TMI 634 - AT - Income Tax

Estimation of income - bogus purchases - HELD THAT - Gross profit rate as show by the assessee in its audit report Form 3CD is 6.19%. Considering the gross profit rate in the light of the decision of M/S MOHOMMAD HAJI ADAM CO. 2019 (2) TMI 1632 - BOMBAY HIGH COURT we direct the AO to restrict the addition to 6.19% of Rs. 25,50,244/- i.e., addition to the extent of Rs. 1,57,860/- is confirmed. Assessee gets part relief.

Summary

Issues:
- Addition of alleged bogus purchases
- Determination of profit element for addition

Analysis:
The appeal was filed against the order dated 07/06/2024 by NFAC, Delhi, regarding the addition of Rs. 25,20,244 as alleged bogus purchases for AY 2012-13. The assessee contended that only the profit element should be added if the purchases were treated as bogus. The AO received information during a search action that the assessee was a beneficiary of bogus purchase bills. Despite producing books of accounts and invoices, the AO made the full addition. The ld. CIT(A) upheld this decision. The appellant argued that even if the purchases were bogus, only the profit should be added, not the entire amount. The authorities below had accepted the sales but doubted one purchase of Rs. 25.50 Lakhs out of total purchases of Rs. 1.55 Crores. The gross profit rate was 6.19%, and the High Court of Bombay's decision in a similar case was cited.

The High Court decision highlighted that purchases cannot be rejected without affecting sales in the case of a trader. The Tribunal was correct in limiting additions to maintain the gross profit rate on purchases consistent with other genuine purchases. Following this, the AO was directed to restrict the addition to 6.19% of Rs. 25,50,244, resulting in a confirmed addition of Rs. 1,57,860. The appeal was partly allowed, granting the assessee partial relief. The order was pronounced in Mumbai on 28th August 2024.