2023 (1) TMI 655 - AT - Income Tax

Bogus purchases - AO got information from Maharashtra Sales Tax Department about unearthing racket more than 1935 Hawala dealers and 33,700 beneficiaries - HELD THAT - The assail is to the making of addition(s) on the basis of bogus purchase bills received by the assessee(s) as accommodation entries from hawala dealers. It is seen that the issue of bogus purchases has come up for consideration before in Mohommad Haji Adam Co. 2019 (2) TMI 1632 - BOMBAY HIGH COURT and others, the Hon ble jurisdictional High Court has held that no ad hoc addition for bogus purchases should be made. It laid down that the addition should be made to the extent of difference between the gross profit rate on genuine purchases and gross profit rate on hawala purchases. Respectfully following the precedent, we set-aside the impugned orders and remit the matter to the file of the respective AOs for applying the ratio laid down by the Hon ble jurisdictional High Court in the above noted case and then recompute the amount of additions, if any, after allowing a reasonable opportunity of hearing to the assessee. All the appeals are allowed for statistical purposes.

Summary

Issues:
1. Addition based on bogus purchase bills received as accommodation entries from hawala dealers.
2. Application of gross profit rate on unproved Hawala purchases.
3. Enhancement of addition by the ld. CIT(A) to 10% gross profit rate.
4. Precedent set by the Hon'ble Bombay High Court regarding ad hoc addition for bogus purchases.

Analysis:

Issue 1: Addition based on bogus purchase bills
The appeals involved three connected assessees with assessment years 2009-10 to 2011-12. The Assessing Officer (AO) initiated re-assessment proceedings based on information from the Sales Tax Department regarding Hawala transactions. The AO made additions to the income of the assessees by applying gross profit rates on unproved Hawala purchases, considering them as accommodation entries from hawala dealers. The assessees challenged these additions before the ld. CIT(A) and subsequently before the Tribunal.

Issue 2: Application of gross profit rate
The AO applied different gross profit rates on unproved Hawala purchases made by each assessee. For example, for one assessee, the AO applied a gross profit rate of 4.63% on the unproved Hawala purchases, resulting in an addition to the income. Similarly, different rates were applied for other assessees for different assessment years.

Issue 3: Enhancement of addition by ld. CIT(A)
The ld. CIT(A) enhanced the additions made by the AO by applying a higher gross profit rate. For instance, in one case, the ld. CIT(A) increased the gross profit rate from 4.63% to 10%, resulting in a higher addition to the income of the assessee. This enhancement was consistent across all three assessees and multiple assessment years.

Issue 4: Precedent set by Hon'ble Bombay High Court
The Tribunal referred to a judgment by the Hon'ble Bombay High Court regarding ad hoc addition for bogus purchases. The High Court held that additions should be made based on the difference between the gross profit rate on genuine purchases and the gross profit rate on hawala purchases. Following this precedent, the Tribunal set aside the impugned orders and remitted the matter back to the respective AOs for re-computation of additions, if any, based on the ratio laid down by the High Court.

In conclusion, the Tribunal allowed all the appeals for statistical purposes, directing the AOs to recompute the additions after following the precedent set by the Hon'ble Bombay High Court.