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2022 (6) TMI 509 - AT - Income TaxEstimation of income - bogus purchases - AO treated profit margin @5% of alleged bogus purchases made from various concerns which appeared as hawala dealers and the Ld.CIT(A) restricted the same to 4% - HELD THAT - Hon'ble Bombay High Court in the case of Pr.CIT v. M/s. Mohommad Haji Adam Co 2019 (2) TMI 1632 - BOMBAY HIGH COURT held that the Tribunal correctly restricted the addition limited to the extent of bringing the Gross Profit rate on purchases at the same rate of other genuine purchases. Thus we direct the Assessing Officer to restrict the addition/disallowance only to the extent of bringing the Gross Profit rate on alleged bogus purchases at the same rate of the other genuine purchases declared by the assessee. We observe that assessee has submitted that it has earned Gross Profit of 10.76% in the transaction involving alleged bogus purchases. Therefore, Assessing Officer is directed to restrict the addition/disallowance to the extent of 1.74% (12.50% - 10.76%) of the alleged bogus purchases. In the result, appeal filed by the assessee is partly allowed.
Issues Involved:
1. Reopening of assessment under Section 147 of the Income Tax Act, 1961. 2. Addition on account of profit from alleged bogus purchases. 3. Non-compliance with the order of the Hon'ble Bombay High Court. Issue-wise Detailed Analysis: 1. Reopening of Assessment under Section 147 of the Income Tax Act, 1961: The assessee initially contested the reopening of assessment under Section 147 but later did not press this ground, leading to its dismissal. 2. Addition on Account of Profit from Alleged Bogus Purchases: The assessee, engaged in the diamond business, filed its return declaring an income of ?64,22,154 for A.Y. 2009-10. Based on information from the DGIT (Investigation), Mumbai, the Assessing Officer (AO) reopened the assessment, suspecting accommodation entries from certain hawala dealers. The AO treated the purchases as non-genuine and added a profit margin of 5%, amounting to ?8,24,899, to the assessee's income. On appeal, the CIT(A) reduced this addition to 4%, resulting in an addition of ?6,59,919. The assessee argued that the purchases were genuine and supported by documentation, including books of account and bank statements. The assessee also cited the Bombay High Court decision in Pr.CIT v. M/s. Mohommad Haji Adam & Co., advocating for an estimation of Gross Profit (GP) on non-genuine purchases at the same rate as genuine purchases. The Tribunal, referencing the Bombay High Court's judgment, directed the AO to restrict the addition to the extent of bringing the GP rate on alleged bogus purchases to the same rate as other genuine purchases. The Tribunal observed that the assessee had declared a GP of 10.76% on the alleged bogus purchases. Consequently, the AO was instructed to restrict the addition to 1.74% (12.50% - 10.76%) of the alleged bogus purchases. 3. Non-compliance with the Order of the Hon'ble Bombay High Court: The Tribunal noted that the CIT(A) did not follow the Bombay High Court's precedent in Pr.CIT v. M/s. Mohommad Haji Adam & Co., which held that the entire purchase amount should not be added as income if the sales are not disputed. The Tribunal emphasized that the addition should be limited to the GP rate differential between genuine and alleged bogus purchases. Conclusion: The appeals for A.Ys. 2011-12, 2012-13, and 2014-15, having similar facts, were decided in line with the decision for A.Y. 2009-10. The Tribunal allowed the appeals partially, directing the AO to restrict the addition to the GP rate differential as specified. Order Pronounced: The order was pronounced in the open court on 23rd May, 2022.
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