2024 (12) TMI 808 - AT - Income Tax

Rejection of books of accounts - estimation of income - bogus purchases - AO based on information received from DDIT(Inv) held that the assessee has entered into bogus purchase transactions with 4 parties - Reason for the AO to make the addition by applying the GP on the entire purchase is that the assessee has recorded higher margins on the alleged bogus transactions and therefore the GP on the entire purchase should have been more HELD THAT - Finding of the AO in our considered view is without any basis and is unsubstantiated. AO himself is recording that out of 20 sample vendors to whom the notice under section 133(6) is issued, only 2 parties have not responded. Further the sample transactions which the AO is alleging as bogus is less than 1% of the total purchases of the assessee and AO on the basis of a small sample holding the entire transaction as bogus without any basis is not justifiable. From the perusal of the CIT(A)'s order, we notice that many findings given by the CIT(A) does not pertain to the assessee and therefore there is merit in the contention of the assessee that the CIT(A) has simply confirmed the addition made by the AO without examining the appeal on merits by applying his mind. In view of these discussions we hold that the addition made by the AO deserves to be deleted. Appeal of the assessee is allowed.

Issues:
1. Jurisdiction and legality of the appellate order by the CIT(A)
2. Violation of principles of natural justice in framing the appellate order
3. Rejection of books of accounts by the CIT(A)
4. Addition to income based on estimation of gross profit due to alleged non-genuine purchases

Analysis:

Issue 1: Jurisdiction and legality of the appellate order by the CIT(A)
The appellant challenged the jurisdiction and legality of the appellate order framed by the Commissioner of Income Tax (Appeals) (CIT(A)), contending that it was without jurisdiction, illegal, and arbitrary. The appellant argued that the order breached statutory provisions and principles of law. The appellant further claimed that the order was framed without proper application of mind and in violation of natural justice principles.

Issue 2: Violation of principles of natural justice in framing the appellate order
The appellant raised concerns about the lack of proper, sufficient, and adequate opportunity to be heard while the appellate order was being framed. The appellant argued that the order was arbitrary and perverse, based on surmises, suspicion, and conjecture. Furthermore, the appellant contended that the order did not consider relevant material and failed to apply the principles of natural justice.

Issue 3: Rejection of books of accounts by the CIT(A)
The CIT(A) confirmed the action of the Assessing Officer (AO) in rejecting the books of accounts of the appellant. The AO had made additions to the appellant's income based on the estimation of gross profit due to alleged non-genuine purchases. The CIT(A) upheld this decision, leading to the appellant challenging the rejection of their books of accounts.

Issue 4: Addition to income based on estimation of gross profit due to alleged non-genuine purchases
The AO rejected the books of accounts of the appellant and made additions to the income based on an estimation of gross profit. The AO alleged that the appellant had entered into bogus purchase transactions with certain parties. The AO's decision was based on the assertion that the appellant had inflated purchases and treated the entire purchases as bogus. The appellant contested this decision, providing various documents to prove the genuineness of the purchases.

In the Tribunal's analysis, it was found that the AO's rejection of the books of accounts was not based on satisfactory grounds. The AO failed to provide substantial evidence to support the claim of bogus transactions. Additionally, the CIT(A) did not thoroughly examine the appeal on its merits and merely confirmed the AO's decision without proper consideration. As a result, the Tribunal allowed the appeal of the assessee, concluding that the addition made by the AO was not justified.

This detailed analysis highlights the key legal issues and the Tribunal's decision in the case, emphasizing the lack of sufficient evidence to support the addition to the appellant's income.

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