2024 (10) TMI 662 - HC - Income Tax

Estimation of income - Bogus purchases - amount claimed as payment to hawala dealers was in effect suppression of profits by obtaining bogus purchase bills - HELD THAT - In view of findings of ITAT, which was based on the fact that assessee at the relevant time was a commission agent and had earned commission on the stated purchases, we do not find any error in the order of ITAT, restricting the addition to 6% of total purchases. No substantial question of law

Summary

Issues:
1. Interpretation of Section 260A of the Income Tax Act, 1961
2. Justification of additions on account of bogus purchases
3. Application of legal precedents in determining additions for unverified purchases
4. Assessment of total income based on bogus purchases

Analysis:

Issue 1: Interpretation of Section 260A of the Income Tax Act, 1961
The appeal under Section 260A of the Income Tax Act, 1961 was filed by the revenue against the order passed by the Income Tax Appellate Tribunal, Surat. The substantial questions of law proposed in the appeal revolved around the justification of partly allowing the appeal of the assessee and restricting the addition to 6% of the total bogus purchases. The court was tasked with interpreting the provisions of the Act to determine the legality of the additions made by the Assessing Officer.

Issue 2: Justification of additions on account of bogus purchases
The case involved an individual engaged in the trading activities of diamonds, who had filed a return of income declaring a total income. However, information revealed that the individual had made bogus purchases through accommodation entries from entities of the Gautam Jain Group. The Assessing Officer reopened the case under Section 147 of the Act and made additions on account of these bogus purchases. The dispute centered on whether the entire purchases should be treated as bogus and added as income, or if the additions should be restricted to a certain percentage.

Issue 3: Application of legal precedents in determining additions for unverified purchases
The Income Tax Appellate Tribunal, in its order, restricted the addition to 6% of the total bogus purchases based on previous decisions and legal precedents. The Tribunal considered the profit element in similar bogus purchases and referred to various cases where additions were either restricted or enhanced to 6%. The court analyzed the consistency in decisions and relied on precedents to determine the appropriate percentage for additions on unverified purchases.

Issue 4: Assessment of total income based on bogus purchases
Ultimately, the court upheld the decision of the Income Tax Appellate Tribunal to restrict the addition to 6% of the total bogus purchases. The court found that the Assessing Officer had established the non-genuineness of the expenditure, and the assessee had failed to discharge the burden of proving the transactions' genuineness. Based on the fact that the assessee was a commission agent earning commission on the stated purchases, the court concluded that no substantial question of law arose for consideration, and the appeal lacked merit, leading to its dismissal.