2024 (7) TMI 651 - AT - Income Tax

Estimation of income - bogus purchases - quantification of the profit/income which the assessee would have made by purchasing the goods in question at a discounted value from the open/grey market - HELD THAT - AO had made the addition of 25% of the value of the impugned bogus purchases, which thereafter, was scaled down by the CIT(Appeals) to 5% but neither of the said quantification of the profit element has any basis. We are unable to subscribe myself to the quantification of the profit element as had been done by both the lower authorities. As stated by the Ld. AR, and rightly so, the issue in hand is squarely covered by the order of M/s. Balaji Rice Industries 2022 (11) TMI 180 - ITAT RAIPUR wherein the Tribunal after relying on the judgment of M/s. Mohhomad Haji Adam Company, 2019 (2) TMI 1632 - BOMBAY HIGH COURT had restricted the addition only to the extent of the difference between the gross profit of the genuine purchases vis- -vis alleged bogus purchases Thus we restore the matter to the file of the A.O, with a direction to him to restrict the addition in the hands of the assessee qua the impugned bogus/unverified purchases by bringing the GP rate of such bogus purchases at the same rate as that of the other genuine purchases. Addition of commission made by the A.O @ 5% as scaled down by the CIT(Appeals) to 1% - HELD THAT - As nothing have been placed on the record that would prove to the hilt that the assessee had incurred any such expenditure, therefore, the addition so made/sustained by the lower authorities on a presumptive basis cannot be sustained. Accordingly, herein vacate the addition. Thus, the Ground of appeal No.4 raised by the assessee is allowed.

Issues Involved:
1. Legitimacy of the CIT(A)'s decision to maintain 5% of alleged bogus purchases.
2. Justification of maintaining 1% of purchase value as hypothetical commission.
3. Non-consideration of the written submission by the appellant.
4. Admissibility of the revenue's appeal due to delay and monetary ceiling limit.
5. Quantification of profit/income from bogus purchases.
6. Legitimacy of the addition towards alleged commission.

Detailed Analysis:

1. Legitimacy of the CIT(A)'s decision to maintain 5% of alleged bogus purchases:
The assessee contested the CIT(A)'s decision to maintain 5% of the alleged bogus purchases, arguing that the rate of alleged bogus purchases was equal to or less than the rate of other genuine purchases. The CIT(A) had scaled down the disallowance from 25% to 5% based on the value of the impugned purchases, but the assessee argued that the disallowance should be restricted to the profit element realized by procuring goods at a discounted value from the open market. The tribunal found that the issue was covered by the ITAT Raipur's order in a similar case, where the addition was restricted to the difference between the gross profit of genuine and bogus purchases.

2. Justification of maintaining 1% of purchase value as hypothetical commission:
The CIT(A) had maintained 1% of the purchase value as a hypothetical commission, which the assessee argued was unjustified. The tribunal agreed with the assessee, noting that no substantial evidence was presented to prove that such an expenditure was incurred. Consequently, the tribunal vacated the addition of Rs. 87,200/- towards the alleged commission.

3. Non-consideration of the written submission by the appellant:
The assessee argued that the CIT(A) did not consider the written submission filed on 07.02.2024, which relied on a jurisdictional ITAT Raipur decision. The tribunal noted that the CIT(A) should have considered the submission and directed the AO to re-examine the issue in light of the relevant judicial pronouncements.

4. Admissibility of the revenue's appeal due to delay and monetary ceiling limit:
The revenue's appeal involved a delay of 15 days, which was condoned by the tribunal due to justifiable reasons such as huge pendency with the AO. The assessee also argued that the appeal was below the monetary ceiling limit as per CBDT Circular No.05/2024, but the tribunal found that the appeal was maintainable as it was based on information from the Investigation Wing, Raipur, which falls under an exception to the circular.

5. Quantification of profit/income from bogus purchases:
The tribunal observed that both lower authorities had erred in quantifying the profit element of the bogus purchases. The tribunal directed the AO to restrict the addition by bringing the GP rate of bogus purchases to the same rate as that of genuine purchases, following the precedent set by the Hon'ble High Court of Bombay in a similar case. The tribunal restored the matter to the AO for re-quantification based on the bifurcated details of average purchase rates provided by the assessee.

6. Legitimacy of the addition towards alleged commission:
The tribunal found no substance in the addition towards the alleged commission, as there was no substantial evidence to prove that such an expenditure was incurred. The tribunal vacated the addition of Rs. 87,200/-, agreeing with the assessee's contention.

Conclusion:
The tribunal partly allowed the appeals of both the assessee and the revenue for statistical purposes, directing the AO to re-examine the issues based on the observations and judicial precedents discussed. The tribunal vacated the addition towards the alleged commission and directed the AO to consider the bifurcated details of average purchase rates provided by the assessee in the set-aside proceedings.

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