2024 (2) TMI 744 - AT - Income Tax

Estimation of income - Bogus purchases - CIT(A) has disallowed 25% of the purchases on the grounds that the assessee could have made some super profits - HELD THAT - As relying on NKG Infrastructure Ltd. 2023 (6) TMI 1272 - ITAT DELHI we hold that justice would be well served if the profit on these purchases is determined at 12.5%. Appeals of the assessee are partly allowed.

Issues Involved:

1. Validity of proceedings initiated u/s 153C.
2. Legality of assessment framed u/s 153C/143(3).
3. Presence of incriminating material found during the search.
4. Proper satisfaction recorded by the AO.
5. Bogus purchases and their confirmation.
6. Addition on account of bogus purchases.
7. Material belonging to the assessee.
8. Tally of quantity purchased and sold.
9. Rejection of material and evidence by the assessee.
10. Violation of natural justice.
11. Opportunity to cross-examine.
12. Addition on account of commission.

Summary:

1. Validity of proceedings initiated u/s 153C:
The assessee contended that the proceedings initiated u/s 153C and the assessment framed u/s 153C/143(3) were in violation of statutory conditions and procedures prescribed under the law, making them bad in the eye of law and liable to be quashed.

2. Legality of assessment framed u/s 153C/143(3):
The assessee argued that the proceedings u/s 153C were bad in law due to the absence of any incriminating material belonging to the assessee found during the search.

3. Presence of incriminating material found during the search:
The Revenue held that documents found during the search indicated that the assessee had taken accommodation entries for bogus purchases, leading to an addition of Rs. 8,58,92,200/- on account of purchases from entities managed by Jain Brothers.

4. Proper satisfaction recorded by the AO:
The assessee claimed that the proceedings initiated u/s 153C and the assessment framed were bad due to the absence of proper satisfaction recorded by the AO that the incriminating material belonged to the assessee.

5. Bogus purchases and their confirmation:
The CIT(A) confirmed the action of the AO in holding that the purchases made by the assessee from certain entities were bogus, leading to an addition of Rs. 2,14,73,050/- on account of bogus purchases.

6. Addition on account of bogus purchases:
The CIT(A) restricted the addition to 25% of the purchases, amounting to Rs. 2,14,73,050/-, based on the rationale that the assessee might have made purchases from the grey market, leading to indirect savings.

7. Material belonging to the assessee:
The assessee argued that the documents on the basis of which the addition was made did not belong to them, and the CIT(A) erred in confirming the addition despite this fact.

8. Tally of quantity purchased and sold:
The assessee contended that there was a complete tally of the quantity purchased and sold, and thus, the allegation of bogus purchases could not be sustained.

9. Rejection of material and evidence by the assessee:
The CIT(A) confirmed the addition by arbitrarily rejecting the material and evidence brought on record by the assessee to show that the purchases were made in the regular course of business.

10. Violation of natural justice:
The assessee argued that no adverse inference could be drawn against them based on material collected at their back without giving them an opportunity to rebut the same, violating the principle of natural justice.

11. Opportunity to cross-examine:
The assessee claimed that the addition was untenable as it was made without providing an opportunity to cross-examine the person on whose statement the allegations were made, violating the principle of natural justice.

12. Addition on account of commission:
The CIT(A) confirmed the addition of Rs. 17,17,844/- on account of commission @2%, without any basis for the same.

Conclusion:
The Tribunal, after considering the arguments and evidence, held that the profit on the disputed purchases should be determined at 12.5%, rather than the 25% determined by the CIT(A). Consequently, the appeals of the Revenue were dismissed, and the appeals of the assessee were partly allowed.

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