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2022 (11) TMI 1165 - AT - Income TaxEstimation of income - Bogus purchases - HELD THAT - Since, the issue is squarely covered by the judgment of Pankaj K. Chaudhary 2021 (10) TMI 653 - ITAT SURAT wherein Tribunal has sustained the addition @ 6% of bogus purchases. Revenue submitted before us that u/s 37 the entire bogus purchases should be disallowed as the bogus purchase would not for the purpose of the business and therefore the 100% addition made by Assessing Officer may be sustained. DR relied on the judgment of Co-ordinate Bench of ITAT, Mumbai in the case of Urmila Co. Ltd. 2013 (11) TMI 477 - ITAT MUMBAI However, we note that the judgment cited by Ld. DR is on different footing and does not applicable to the facts of the assessee s case under consideration. Therefore, respectfully following the binding precedent of the Co-ordinate Bench of ITAT, Surat in the case of Pankaj K. Chaudhary 2021 (10) TMI 653 - ITAT SURAT we partly allow the appeal of the Revenue.
Issues Involved:
1. Restriction of addition made by the Assessing Officer (AO) on account of bogus purchases. 2. Deletion of addition on account of corresponding receipt to undisclosed TDS. 3. Validity of reopening the assessment based on third-party information. 4. Determination of the appropriate percentage for disallowance of bogus purchases. Issue-wise Analysis: 1. Restriction of Addition on Account of Bogus Purchases: The AO observed that the assessee made transactions with entities of the Gautam Jain Group, which were involved in providing accommodation entries, including bogus purchases. The AO concluded that the purchases shown by the assessee were not genuine and added Rs. 14,96,35,632/- to the total income of the assessee. The CIT(A) restricted this addition to 5% of the bogus purchases, citing similar cases and jurisdictional ITAT decisions. 2. Deletion of Addition on Account of Corresponding Receipt to Undisclosed TDS: The AO added Rs. 1,34,795/- on account of corresponding receipt to undisclosed TDS. However, the CIT(A) deleted this addition, which was not contested further in the appeal. 3. Validity of Reopening the Assessment: The AO reopened the assessment based on information from the Investigation Wing, Mumbai, about the Gautam Jain Group providing accommodation entries. The assessee challenged the validity of reopening, arguing that the AO relied on third-party information without independent investigation. The Tribunal upheld the validity of reopening, referencing jurisdictional High Court decisions that supported reopening based on credible information from the Investigation Wing. 4. Determination of Appropriate Percentage for Disallowance of Bogus Purchases: The CIT(A) restricted the disallowance to 5% of the bogus purchases, considering the facts and similar cases where the ITAT had given partial relief. The Tribunal, referencing the case of Pankaj K. Chaudhary, modified the disallowance to 6% of the bogus purchases, balancing the need to prevent revenue leakage with the principle that only the income component of the transaction should be taxed. The Tribunal dismissed the Revenue's appeal for a 100% disallowance, noting that such a disallowance would not be appropriate under section 37 of the Act. Conclusion: The Tribunal partly allowed the Revenue's appeal, modifying the disallowance of bogus purchases to 6%, and upheld the validity of reopening the assessment. The order of the CIT(A) was thus modified in accordance with the Tribunal's decision in the case of Pankaj K. Chaudhary. The appeal was pronounced on 07/11/2022.
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