2022 (11) TMI 1059 - AT - Income Tax

Estimation of income - Bogus purchases - HELD THAT - Respectfully following the judicial precedent in the assessee s own case 2019 (8) TMI 1846 - ITAT MUMBAI we direct the Assessing Officer to restrict the addition to 6% of the bogus purchases. Accordingly, ground No. 2 raised in the assessee s appeal is partly allowed.

Summary

Issues:
1. Validity of reassessment proceedings under section 147 of the Income Tax Act.
2. Disallowance on account of bogus purchases.

Issue 1 - Validity of Reassessment Proceedings:
The appeal was filed challenging the order passed by the Commissioner of Income Tax (Appeals) for the assessment year 2007-08. The assessee contended that the notice issued under section 148 of the Act was beyond jurisdiction and time-barred as per the first proviso to section 147. The Assessing Officer had made an order under section 143(3) read with section 147, adding the entire amount of bogus purchases to the total income of the assessee. However, the assessee failed to prove the genuineness of the transactions, leading to the addition. The learned CIT(A) granted partial relief and restricted the addition to 12.5% of the bogus purchases, considering that the sales made by the assessee out of the disputed purchases were not in doubt. The assessee challenged this decision, but ground No. 1 regarding the validity of reassessment proceedings was dismissed as not pressed during the hearing.

Issue 2 - Disallowance on Account of Bogus Purchases:
The issue in ground No. 2 of the appeal pertained to the disallowance on account of bogus purchases. The assessee, engaged in trading paper, had filed its return declaring income. Reassessment proceedings were initiated based on information regarding bogus purchase bills. The Assessing Officer added the entire amount of bogus purchases to the income of the assessee. The learned CIT(A) granted partial relief and restricted the addition to 12.5% of the bogus purchases, noting that the corresponding sales were not in doubt. During the hearing, the authorized representative cited a precedent where a similar addition was restricted to 6% of non-genuine purchases. The Tribunal considered this precedent and directed the Assessing Officer to restrict the addition to 6% of the bogus purchases, following the judicial precedent in the assessee's own case. Consequently, ground No. 2 raised by the assessee was partly allowed, and the appeal was partly allowed in favor of the assessee.

This judgment highlights the importance of substantiating transactions to avoid additions to income and the significance of judicial precedents in determining reasonable additions in cases of non-genuine purchases.