2024 (10) TMI 915 - AT - Income Tax

Estimation of income - bogus purchases - valid parameter for determining the amount of profits embedded in purchases made from grey market - HELD THAT - We note that in the present case it has been contended by the Assessee that the Assessee has disclosed overall gross profit margin of 50.77%. Accordingly, keeping in view the above judgment of Mohommad Haji Adam Co. 2019 (2) TMI 1632 - BOMBAY HIGH COURT the AO is directed to compute/verify the gross profit margin declared/computed by the Assessee in respect of the genuine purchases as well as the alleged bogus purchases; and thereafter, restrict the quantum of addition sustained by the CIT(A) to the differential amount determined by taking into consideration the difference, if any, in the aforesaid gross profit margins. Assessee is also directed to co-operate and provide to the Assessing Officer the computation of gross profit margins to implement the aforesaid directions of the Tribunal - Assessee ground allowed for statistical purposes.

Summary

Issues:
Cross-appeals pertaining to Assessment Year 2018-19 arising from the order passed by the National Faceless Appeal Centre (NFAC), Delhi, regarding the partial allowance of appeal against the Assessment Order under Section 147 of the Income Tax Act, 1961.

Analysis:

1. The Assessee filed an appeal seeking condonation of delay in filing the appeal by four days, citing the time taken to obtain necessary legal advice. The delay was deemed unintentional, and the application for condonation was allowed. The appeal was then adjudicated on merits.

2. The Assessee raised grounds of appeal related to the disallowance of purchases and gross profit estimation. The Revenue also raised grounds challenging the partial allowance of the appeal by the CIT(A) regarding the disallowance of bogus purchases. The arguments revolved around the genuineness of purchases and the need for adding the entire amount of alleged bogus purchases to the Assessee's income.

3. The case involved the Assessee, a private limited company engaged in retail sale of garments, facing scrutiny for alleged bogus purchases from specific entities. The Assessing Officer added a substantial amount under Section 69C of the Act, leading to the appeal and subsequent partial relief by the CIT(A).

4. The Tribunal heard both sides and considered the arguments. The Revenue contended for disallowing the entire bogus purchases, while the Assessee argued for a limited addition based on the difference in gross profit margins. The Tribunal referred to a Bombay High Court judgment for guidance on determining the quantum of addition in cases of alleged bogus purchases.

5. Following the Bombay High Court's guidance, the Tribunal directed the Assessing Officer to compute the gross profit margins for genuine and alleged bogus purchases, restricting the quantum of addition to the differential amount based on the margins. The Assessee was instructed to cooperate in providing necessary information. Consequently, the Assessee's appeal was allowed for statistical purposes, while the Revenue's appeal was dismissed.

6. The judgment was pronounced on 26.08.2024, with the Tribunal providing a detailed analysis and direction based on legal precedents and the specific facts of the case, ultimately resolving the issues raised in the cross-appeals.