2024 (1) TMI 850 - AT - Income Tax

Estimation of income - Bogus purchases - HELD THAT - AO has himself stated that it cannot be said that assessee had not made purchases but, according to the AO, purchases were made from parties different than the parties entered in the books of account. On this account, AO has made addition for bogus purchases @ 25% of the purchases. This can only be said to be surmise. It is settled law that no addition is permissible on the basis of surmise and conjecture. When corresponding sales have been accepted, disallowance for bogus purchase is not sustainable. Further, ld. CIT (A) vide his elaborate order has dealt with all the issues raised by the AO in his assessment order and has come to the conclusion that the addition on account of bogus purchases is not sustainable. We do not find any infirmity in the well reasoned order of ld. CIT (A). We further note that ITAT in assessee s own case 2023 (10) TMI 188 - ITAT DELHI has deleted the addition on bogus purchases as held FAA was justified in deleting the additions made on account of nongenuine purchases. Once the purchases are held to be genuine, then there cannot be any doubt regarding manufacturing activity of the assessee. Therefore, the manufacturing expenses claimed by the assessee have to be allowed. In this view of the matter, we do not find any infirmity in the decision of learned Commissioner (Appeals). Decided against revenue.

Summary

Issues Involved:
1. Deletion of additions made by the AO for bogus purchases by the assessee.

Summary:

Issue: Deletion of Additions for Bogus Purchases

The Revenue appealed against the common order of the CIT (A) for Assessment Years 2012-13 to 2017-18, challenging the deletion of additions made by the AO for bogus purchases by the assessee. The AO had concluded that while purchases were made, they were not from the parties listed in the books of account but from the grey market, leading to a disallowance of 25% of the bogus purchases. The AO's rationale was based on the observation that the purchases were made without proper billing or documentation, and only the profit element embedded in such purchases should be added to the income of the assessee.

Upon appeal, the CIT (A) thoroughly examined the issues raised by the AO. The CIT (A) concluded that M/s Aster Commodities, alleged to be a bogus entity by the AO, was in fact a legitimate entity involved in actual trading and C&F activities. The CIT (A) noted that M/s Aster Commodities was regularly assessed to tax, maintained proper documentation, and had been verified by various government agencies. The CIT (A) rejected the AO's allegations of grey market purchases and inflation of purchase prices as being based on presumptions and without evidence. The CIT (A) held that the purchases made by the appellant from M/s Aster Commodities were genuine and comparable to other purchase prices from corresponding sources like MCX dealers and farmers.

The Tribunal upheld the CIT (A)'s order, noting that the AO's addition was based on estimates and surmises. The Tribunal emphasized that no addition is permissible on the basis of surmise and conjecture, especially when corresponding sales have been accepted. The Tribunal also referred to its earlier decision in the assessee's own case for AYs 2008-09 to 2012-13, where similar additions for bogus purchases were deleted. The Tribunal found no infirmity in the CIT (A)'s well-reasoned order and dismissed the Revenue's appeals for all the assessment years under consideration.

Conclusion:

The Tribunal upheld the CIT (A)'s decision to delete the additions made by the AO for bogus purchases, finding that the AO's conclusions were based on presumptions without evidence. The Tribunal emphasized that M/s Aster Commodities was a legitimate entity and that the purchases made by the appellant were genuine. The appeals filed by the Revenue were dismissed.