2025 (4) TMI 1559 - AT - Income Tax

Estimation of income - Bogus purchases - AO applied a gross profit rate of 1.31% on the said amount resulting in an addition - CIT(A) held as quite rational to follow the spirit of the judgment given by Hon ble ITAT in the appellant s own case and hold that the quantum of profit attributable to total bogus purchases may be calculated @ 0.2% of the same HELD THAT - We have also duly considered the order of the Coordinate Bench of the Tribunal rendered in the assessee s own case for Assessment Year 2011-12 2018 (8) TMI 1626 - ITAT MUMBAI . In view of the binding judicial precedent and consistent findings in earlier years the grounds raised by the revenue are hereby rejected.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

- Whether the learned Commissioner of Income-tax (Appeals) erred in reducing the quantum of addition from 1.31% to 0.2% of the purchases amounting to Rs. 2,69,78,490/- which were alleged to be bogus purchases made by the assessee.

- Whether the addition made by the Assessing Officer on account of alleged bogus purchases was justified and sustainable in law and on facts.

- Whether the principle of consistency and binding precedent from the Tribunal's earlier decision in the assessee's own case for Assessment Year 2011-12 should be applied in the present case.

2. ISSUE-WISE DETAILED ANALYSIS

Issue: Quantum of addition on account of bogus purchases

Relevant legal framework and precedents: The assessment was made under sections 143(3) and 147 of the Income-tax Act, 1961, following issuance of notice under section 148 based on information from the Investigation Wing concerning alleged bogus purchases. The Assessing Officer applied a gross profit (GP) rate of 1.31% on the net purchase value of Rs. 2,69,78,490/-, resulting in an addition of Rs. 3,53,418/- to the income of the assessee.

The learned Commissioner of Income-tax (Appeals) relied on a binding precedent from the Income Tax Appellate Tribunal (ITAT), Mumbai Bench "C" in the assessee's own case for AY 2011-12, wherein the Tribunal had held that the total profit embedded in such bogus purchases should be computed at 0.2% of the purchase value. This precedent had attained finality and was binding on the present proceedings.

Court's interpretation and reasoning: The CIT(A) noted the factual similarity between the present case and the earlier AY 2011-12 case. The Tribunal had already adjudicated on the quantum of profit to be attributed to bogus purchases at 0.2%. Applying the same ratio served the interest of justice and avoided double calculation of gross profit on the quantum of bogus purchases. The CIT(A) thus reduced the addition from Rs. 3,53,418/- (1.31%) to Rs. 53,957/- (0.2%).

Key evidence and findings: The Assessing Officer's computation was based on information from the Investigation Wing alleging bogus purchases of Rs. 2,80,57,630/-, adjusted for VAT to Rs. 2,69,78,490/-. The CIT(A) relied on the Tribunal's earlier decision for AY 2011-12, which was on identical facts and had attained finality, to determine the appropriate GP rate to be applied.

Application of law to facts: The Tribunal applied the principle of consistency and binding precedent, holding that the same GP rate of 0.2% should be applied to the bogus purchases in the current assessment year. This approach was deemed rational and just, preventing an inflated addition and double counting of profit.

Treatment of competing arguments: The Revenue contended that the addition should be sustained at 1.31%, as originally computed by the Assessing Officer. However, the Revenue failed to produce any contrary judicial decision to rebut the binding precedent relied upon by the CIT(A). The Tribunal noted this absence of contrary authority and upheld the CIT(A)'s reasoning.

Conclusions: The Tribunal concluded that the CIT(A) did not err in applying the 0.2% GP rate and reducing the addition accordingly. The addition was sustained only to the extent of Rs. 53,957/-, granting relief of Rs. 2,99,461/- to the assessee.

3. SIGNIFICANT HOLDINGS

The Tribunal held as follows:

"Briefly stated, sole ingredient of addition made in the case of the appellant remains its transaction with Hawala dealers for making bogus purchases. Since, jurisdiction ITAT has already given its verdict in the matter holding that total profit embedded in such bogus purchases may be computed @ 0.2% of such purchases and the order has attained finality, applying the ratio of the same judgment would serve the interest of justice in the instant case because facts and circumstances of both the years are almost identical. Even otherwise, if the quantum of GP of 1.31% which was applied for making addition during scrutiny assessment is left alone, it would give rise to double calculation of GP on the quantum of bogus purchases. It is therefore found quite rational to follow the spirit of the judgment given by Hon'ble ITAT in the appellant's own case and hold that the quantum of profit attributable to total bogus purchases of Rs. 2,69,78,490/- may be calculated @ 0.2% of the same. Since, 0.2% of Rs. 2,69,78,490/- works out at Rs. 53,957/- only, the appellant is held eligible for getting relief of Rs. 2,99,461/-. Accordingly, the appeal stands partly allowed and the addition stands confirmed to the extent of Rs. 53,957/- only."

The Tribunal emphasized the binding nature of its earlier decision and the principle of consistency in tax assessments. It rejected the Revenue's grounds and upheld the CIT(A) order, dismissing the appeal.