2023 (7) TMI 127 - AT - Income Tax

Estimation of income - Bogus purchases - addition of 12.5% made by AO - HELD THAT - As considering prevalent gross profit in the business of ferrous and non ferrous metal trading which is to the tune of 5% to 8%, the addition made by the AO @ 12.5% of the bogus purchases appears to be fair and reasonable. Assessee has candidly admitted that addition @ 12.5% of the bogus purchases made by the AO may be upheld. So in view of the matter, the impugned order passed by the Ld. CIT(A) is hereby set aside and the order passed by the AO making the addition @ 12.5% of the bogus purchases is restored. Consequently, the appeal filed by the assessee is partly allowed.

Summary

Issues Involved:
1. Condonation of Delay
2. Re-opening u/s 147 of the Income Tax Act, 1961
3. Deletion of Alleged Additions
4. Penalty u/s 271(1)(c)

Condonation of Delay:
At the outset, the appeal was time-barred by 952 days. The assessee's representative attributed the delay to the negligence of the tax consultant, who failed to attend the appeal and did not inform the assessee. The Tribunal condoned the delay, referencing the Supreme Court's ruling in Land Acquisition Collector vs. MST Katiji & Others 167 ITR 471 (SC), emphasizing that substantial justice should prevail over technicalities.

Re-opening u/s 147 of the Income Tax Act, 1961:
The assessee contested the re-opening of the assessment, arguing it was bad in law. The Tribunal noted that the original return was processed u/s 143(1) and was later re-opened based on information about bogus purchase bills from the Sales Tax Department and DGIT (Inv.), Mumbai. The Tribunal upheld the re-opening, as the proceedings were initiated based on substantial information.

Deletion of Alleged Additions:
The AO had made an addition of Rs. 7,33,740/- (12.5% of Rs. 58,69,921/-) for unproved purchases. The CIT(A) enhanced this to 100% of the bogus purchases. The Tribunal, however, noted that the sales were accepted as genuine and referred to the Bombay High Court's decision in Pr. CIT vs. JK Surface Coatings Pvt. Ltd., which stated that only the profit element in bogus purchases should be taxed. The Tribunal restored the AO's addition of 12.5%, deeming it fair and reasonable.

Penalty u/s 271(1)(c):
The assessee sought to drop the penalty of Rs. 53,21,430/- levied by the AO, arguing that penalty cannot be levied on estimated additions. The Tribunal did not explicitly address this issue in the summarized judgment, focusing instead on the primary issues of delay, re-opening, and additions.

Conclusion:
The Tribunal condoned the delay, upheld the re-opening of the assessment, and restored the AO's addition of 12.5% of the bogus purchases, setting aside the CIT(A)'s order. The appeal was partly allowed.