2024 (1) TMI 485 - AT - Income Tax

Estimation of income - bogus purchases - addition of 25% of alleged inflated purchase on the basis of sized excel sheets - this was the case of search u/s 132, yet the AO instead of issuance of notice under section 153A proceeded to make the assessment u/s 147 - HELD THAT - It is settled position under law that no sale or consumption is possible in absence of purchase. The finished products of assessee is not in dispute. No evidence was brought on record to show that at the time of search, there was discrepancy in the stock register. No adverse evidence from the seller either in the form of their statements or other evidence suggesting on such bogus purchase are brought on record. No doubt, that employees of assessee during search action has accepted inflated purchase though such statement was retracted within a reasonable time. No comparable stances of GP in similar industry is brought on record either by assessing officer or by assessee. Thus, keeping in view overall facts and circumstances, when their certain statements of staff member of assessee though it was retracted, we are of the view that 7.5% of impugned purchase is seems to be a higher side when the assessee itself as declared income of Rs. 10.87 crores during current assessment year, which is higher than earlier years. We find that in the earlier year, assessee has shown gross profit at 7.69% and 8.68% in the current year respectively, which is 0.98% to earlier years also. We are also conscious of the fact that when there is allegation of bogus purchase only profit element embedded in such purchase is to be brought to tax and substantial part of the transaction. Therefore, keeping in view that assessee has shown good gross profit of 8.68%. Therefore, further addition of 7.5% of Rs. 36.05 crores would be on higher side. Therefore, in order to avoid possibility of revenue leakage, the gross profit of assessee is increased at 9.00% in place of 8.68%. This ground of assessee s appeal is partly allowed.

Issues Involved:
1. Reopening of assessment under section 147 and issuance of notice under section 148.
2. Sustaining addition on account of alleged 7.5% G.P. calculated on total alleged purchase.
3. Addition on the basis of total alleged purchase inclusive of VAT, GST, and other taxes.
4. Initiation of penalty proceedings under section 270A r.w.s. 274 and request to grant stay on demand under section 156.
5. Rejection of books of account without showing any cogent evidence.

Summary:

Issue 1: Reopening of Assessment
The assessee challenged the reopening of the assessment under section 147 and the issuance of notice under section 148. However, no specific submission was made by the Ld. AR for the assessee during the hearing. Therefore, this ground of the assessee's appeal was treated as not pressed and dismissed.

Issue 2: Sustaining Addition on Alleged G.P.
The Ld. CIT(A) sustained the addition to the extent of 7.5% of the impugned purchase, reducing the addition from Rs. 9,01,25,099/- to Rs. 2,70,37,530/-. The Tribunal found that the gross profit (GP) of the assessee was higher than in previous years, and the consumption and sales were verified by an independent institution (SVNIT). The Tribunal concluded that only the profit element embedded in the alleged bogus purchase should be taxed. The GP was increased to 9.00% in place of 8.68%, and the addition was adjusted accordingly.

Issue 3: Addition Inclusive of Taxes
The Ld. CIT(A) noted that the purchases were supported by bills, payments were made through banking channels, and transactions were confirmed by suppliers. The suppliers had paid taxes on all supplies, and no discrepancies were found in the stock register. The Tribunal agreed with the Ld. CIT(A) that the purchases could not be treated as entirely bogus and adjusted the GP accordingly.

Issue 4: Penalty Proceedings and Stay on Demand
The assessee requested a stay on demand under section 156 and challenged the initiation of penalty proceedings under section 270A r.w.s. 274. The Tribunal did not specifically address this issue in the judgment, focusing instead on the substantive issues of addition and GP calculation.

Issue 5: Rejection of Books of Account
The Ld. CIT(A) and the Tribunal found that the books of account were properly maintained, and no major discrepancies were found during the search action. The quantitative details were verified and matched with the records. Therefore, the rejection of the books of account by the Assessing Officer was not upheld.

Conclusion:
The Tribunal partly allowed the assessee's appeal by adjusting the GP to 9.00% and dismissed the Revenue's appeal. The reopening of the assessment was not pressed by the assessee and was dismissed. The judgment emphasized the importance of proper verification of purchases and the necessity of taxing only the profit element in alleged bogus transactions.

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