2021 (6) TMI 269 - AT - Income Tax

Bogus purchases - gross profit rate earned from bogus purchase - HELD THAT - We find that in the similar facts and circumstances and on identical situation, the Hon ble Bombay High Court in the case of Pr.CIT Vs. Mohammad Haji Adam Co. 2019 (2) TMI 1632 - BOMBAY HIGH COURT wherein it has been held that no ad-hoc addition at the rate of 10% of bogus purchases is warranted. Rather, the addition should be made to the extent of difference between gross profit rate on genuine purchases and gross profit rate of bogus purchases. For example, if the GP percentage of genuine purchases comes to 8% whereas GP percentage of bogus purchases comes to 10%, then 2% of bogus purchases can be added to the income of the assessee. Reverting to the facts of the present case and taking guidance from the said judgment of the Hon'ble Bombay High Court in the case of Pr.CIT Vs. Mohommad Haji Adam (supra.), we set aside the order of the Ld. CIT(Appeal) and restore the matter back to the file of the Assessing Officer for undertaking this exercise and finding out the excess gross profit rate earned from bogus purchases and then making the addition accordingly after allowing reasonable opportunity of hearing to the assessee.

Summary

Issues:
1. Addition of alleged hawala/inflated purchases by the Assessing Officer.
2. Confirmation of addition by the Ld. CIT(Appeals) at 10% of the total amount.
3. Discrepancy in the percentage of addition between the Assessing Officer and the Ld. CIT(Appeals).
4. Application of the judgment of the Hon'ble Bombay High Court in a similar case.
5. Appeal by the Revenue in ITA No.40/PUN/2017.
6. Appeal by the Assessee in ITA No.81/PUN/2017.

Analysis:
1. The case involved the Assessing Officer making an addition of ?1,69,58,793 on account of alleged hawala/inflated purchases by the company. The Ld. CIT(Appeals) confirmed the addition at 10% of the total amount, amounting to ?16,95,879. The Revenue appealed this decision, arguing for a 100% addition based on the information provided by the Sales Tax Department regarding hawala trading.

2. The Tribunal noted that the case revolved around bogus purchases based on information from the Sales Tax Department. Citing a judgment of the Hon'ble Bombay High Court, the Tribunal directed that the addition should be based on the difference between the gross profit rate on genuine purchases and the gross profit rate of bogus purchases. Therefore, the Tribunal set aside the Ld. CIT(Appeals) order and remitted the matter back to the Assessing Officer for further examination.

3. In the appeal filed by the Assessee in ITA No.81/PUN/2017, similar issues were raised as in the Revenue's appeal. The Tribunal decided that the decision rendered in the Revenue's appeal for the same assessment year would apply mutatis mutandis to the Assessee's appeal. Consequently, the matter was remitted back to the Assessing Officer for reconsideration in line with the directions given in the Revenue's appeal.

4. Ultimately, both the appeal of the Revenue and the appeal of the Assessee were allowed for statistical purposes, with the Tribunal pronouncing the order on May 10, 2021.