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2020 (12) TMI 988 - AT - Income TaxEstimation of income - Bogus purchases - closing stock computation - claim of the assessee that when assessee has already disallowed the bogus purchases, it should also get benefit by reducing the amount in the closing stock, because of the reason that inventory is to be valued, if found in existence as the bogus purchases inventory - Double addition - HELD THAT - It is not in existence, the consequent closing stock shown also to be reduced by the above amount. This claim of the assessee has been correctly rejected by the CIT(A) by stating that the opening stock in the subsequent year i.e. AY 2013-14, assessee has shown it to be ₹ 4,74,01,230/- and therefore, in that particular year the stock is debited to the profit and loss account. If the claim of the assessee is accepted then assessee must necessarily proved that items shown as bogus purchases were also carried on in the closing stock. The same has not been shown by proving the quantity of such goods as well as the price on which it is carried on in the inventory. Admittedly, no inventory is furnished in the opening and closing stock by the assessee. In this view, we do not find any infirmity in the order of the Ld. CIT(A), so far as it relates to rejecting the claim of the assessee of double addition. Alternative arguments of the Ld. AR that in the case of bogus purchases, if they are not written off or reduced from the closing stock then, necessarily in the sale price the same is included and therefore, only gross profit on the same can be added - We find that the above arguments also supported by relying on Simit P. Sheth 2013 (10) TMI 1028 - GUJARAT HIGH COURT - The assessee has shown that in the year ending March, 2012, the gross profit ratio of the assessee is 9.25%. We direct the Ld. Assessing Officer to retain the addition @9.25% of ₹ 2.44 crores of ₹ 22,57,000/- deserve to be retained and the balance addition of ₹ 2,21,43,000/- deserve to be deleted. The reasons being that once the bogus purchases have gone into the profit and loss account, and necessary sales have not been doubted, only option left with the revenue is to make the addition of the gross profit embedded in the bogus purchases. Accordingly, the ground no. 1 of the appeal is partly allowed.
Issues Involved:
1. Addition of ?2.44 crores to the assessee's income on account of bogus purchases. 2. Rejection of the claim for reduction of closing stock by ?2.44 crores. 3. Alleged double addition of ?2.44 crores. 4. Proper opportunity not given to the assessee by CIT(A). Issue-wise Detailed Analysis: 1. Addition of ?2.44 crores to the assessee's income on account of bogus purchases: The core issue in this appeal is the addition of ?2.44 crores made by the Assessing Officer (AO) and upheld by the CIT(A) concerning the closing stock. During the search under section 132 of the Income Tax Act, 1961, it was discovered that the assessee had made purchases from three different parties, which were found to be bogus. The AO concluded that the assessee received cash back after making payments by cheque, thus claiming bogus purchases amounting to ?2.44 crores. The CIT(A) confirmed this addition, noting that the assessee had admitted to the bogus purchases and had filed a revised return adding back the bogus purchases to its profits. 2. Rejection of the claim for reduction of closing stock by ?2.44 crores: The assessee argued that since the bogus purchases were added back to the income, the closing stock should be reduced by the same amount to avoid double taxation. However, the CIT(A) rejected this claim, stating that the closing stock could only be reduced if the appellant could establish that the closing stock valuation was as per a stock register, which the appellant failed to produce. The Tax Audit Report also indicated that no stock book was maintained, and quantity-wise sales turnover was not recorded. Additionally, the audited balance sheet for the subsequent year showed the closing stock as ?4,74,01,230/-, not reduced by ?2.44 crores, further proving the false claim of reduction in closing stock. 3. Alleged double addition of ?2.44 crores: The assessee contended that there was a double addition since the bogus purchases were already added back to the income, and the closing stock was not adjusted accordingly. The CIT(A) and the Tribunal found no merit in this argument, as the assessee could not prove that the bogus purchases were carried in the closing stock. The Tribunal noted that the opening stock for the subsequent year was shown as ?4,74,01,230/-, and no inventory details were provided to substantiate the claim. Therefore, the claim of double addition was rejected. 4. Proper opportunity not given to the assessee by CIT(A): The assessee argued that the CIT(A) did not provide a proper opportunity to present its case, thus violating the principles of natural justice. However, this contention was not argued during the proceedings before the CIT(A) and was therefore rejected by the Tribunal. Conclusion: The Tribunal partially allowed the appeal by directing the AO to retain the addition at 9.25% of ?2.44 crores (?22,57,000) and delete the balance addition of ?2,21,43,000. This decision was based on the principle that only the gross profit embedded in the bogus purchases should be added if the sales are not doubted. The Tribunal found no merit in the claim of double addition and upheld the CIT(A)'s order rejecting the reduction in closing stock. Pronouncement: The decision was pronounced on 24.12.2020.
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