2019 (10) TMI 210 - AT - Income Tax

Bogus purchases - AO has added entire such purchases in assessee s income - HELD THAT - AR has relied on the decision of the Hon ble Bombay High Court in the case of Pr.CIT Vs M/s Mohommad Haji Adam Co. 2019 (2) TMI 1632 - BOMBAY HIGH COURT wherein it was held that the addition in respect of bogus purchases should be restricted to difference between the gross profit shown by the assessee in respect of bogus purchases vis a vis normal purchases. Meaning thereby the addition should be confined to gross profit shown on the bogus purchases which is found to be lower than the gross profit on normal purchases We direct the A.O. to recompute the addition in respect of bogus purchases in terms of the proposition laid down by the Hon ble Bombay High Court as stated above. We direct accordingly.

Summary

Issues:
- Deletion of addition of ?95,39,678 on account of alleged bogus purchases
- Application of Hon'ble Bombay High Court decision in restricting additions to gross profit on bogus purchases

Analysis:
1. The appeal was filed by the revenue against the CIT(A)'s order for the A.Y. 2010-11 regarding the addition of ?95,39,678 on alleged bogus purchases. Although the tax effect was less than ?50,00,000, the case fell under an exception due to assessment reopening based on information from the Sales Tax Department, an outside authority.

2. The A.O. added the entire amount of alleged bogus purchases to the assessee's income without actual delivery. The CIT(A) deleted the addition based on the decision of the Coordinate Bench and the Hon'ble Bombay High Court, which restricted additions to the difference in gross profit between bogus and normal purchases.

3. The Hon'ble Bombay High Court's decision in Pr.CIT Vs M/s Mohommad Haji Adam & Co. ruled that additions for bogus purchases should be limited to the lower gross profit on those purchases compared to normal ones. The Tribunal correctly applied this principle in restricting the additions, aligning the G.P. rate on bogus purchases with that of genuine purchases.

4. The Tribunal directed the A.O. to recalculate the addition following the Hon'ble Bombay High Court's proposition. Consequently, the revenue's appeal was partially allowed based on the application of the High Court's decision to limit additions to the gross profit discrepancy on bogus purchases.

5. The judgment emphasized the importance of aligning additions on bogus purchases with the gross profit rate on genuine purchases, as per the Hon'ble Bombay High Court's directive. The decision provided clarity on the methodology for calculating additions in such cases, ensuring a fair and consistent approach in determining taxable income.