2024 (11) TMI 500 - AT - Income Tax

Estimation of income - bogus purchase - accommodation/fictitious bills taken from certain entities/parties - HELD THAT - AO has neither rejected the books of accounts nor has specified as to under which Section of the Act, he is making the addition. Even FAA has not rejected the books of accounts. Therefore, in our considered opinion, the bills may be bogus but the purchases are genuine and the sales have been accepted on such purchases. Therefore, the addition @12.5% of the alleged bogus purchases, should meet the ends of justice. We accordingly direct the AO to restrict the addition to 12.5% of the alleged bogus purchases. Appeal of the assessee is partly allowed.

Summary

Issues:
Assessment enhancement to 100% of alleged bogus purchases, Reopening of assessment based on information about bogus purchases, Determination of genuine transactions with specific parties, Addition made by AO at 25% of alleged bogus purchases, Enhancement of assessment by CIT(A) to 100% of alleged bogus purchases, Appeal by assessee for considering only profit element in alleged bogus purchases, Comparison with previous case law on similar issue, Decision on the appropriate percentage for addition to alleged bogus purchases.

Analysis:
The judgment involves an appeal by the assessee against the order of the ld. CIT(A) pertaining to AY 2010-11, where the grievance was the enhancement of assessment to 100% of alleged bogus purchases. The case began with the assessee filing its return of income, which was later reopened due to suspicions of bogus purchases. The AO issued notices to parties involved in the transactions, but no response was received. The assessee claimed the parties were untraceable. The AO, believing the purchases to be bogus, added 25% of the alleged amount. The ld. CIT(A) disagreed and enhanced the assessment by adding the full amount of alleged bogus purchases.

During the appeal, the assessee argued for considering only the profit element in the alleged bogus purchases. The counsel referred to a previous case where a Co-ordinate Bench confirmed an addition of 12.5% of alleged bogus purchases. The ld. D/R supported the CIT(A)'s decision. The Tribunal noted that the AO did not specify the section under which the addition was made, and the CIT(A) did not reject the books of accounts. The Tribunal concluded that while the bills may be bogus, the purchases were genuine, and sales were accepted based on those purchases. Therefore, the addition was restricted to 12.5% of the alleged bogus purchases, considering justice.

In the final decision, the Tribunal partly allowed the appeal of the assessee, directing the AO to restrict the addition to 12.5% of the alleged bogus purchases. The judgment was pronounced in Mumbai on 8th November 2024.