2024 (7) TMI 1164 - AT - Income Tax

Estimation of income - Bogus purchases - HELD THAT - The matter is covered by the Co-ordinate Bench of ITAT, Mumbai in assessee s own case for AY 2009-10 wherein profit rate of 4% has been directed to be applied on the alleged bogus purchases. As in the case of Mohammed Haji Adam Co. 2019 (2) TMI 1632 - BOMBAY HIGH COURT had held to restrict the addition to the extent of bringing the gross profit rate on purchases at the same rate of other genuine purchases. In the present case, assessee has claimed that he had earned gross profit rate of 4.13%. Accordingly, we direct the AO to apply the rate of 4% on the alleged bogus purchases. Appeal of the assessee is partly allowed.

Summary

Issues:
- Appeal against order of Ld. CIT(A) regarding addition of alleged bogus purchases
- Plea for withdrawal of penalty proceedings u/s 271(1)(c)

Analysis:
1. The appeal filed by the assessee challenges the order of Ld. CIT(A) regarding the addition of Rs.50,05,968/- made by the Assessing Officer, constituting 25% of the alleged bogus purchases totaling Rs.2,00,23,871. The case was reopened under section 147 based on information received regarding hawala purchase entries. The Assessing Officer added 25% of the non-genuine purchases as profit to the total income of the assessee, resulting in the disputed amount. The CIT(A) upheld this addition, leading to the appeal before the Tribunal.

2. The assessee contended that being a trader in ferrous and non-ferrous metals, where sales were not in doubt, the rejection of purchases was unwarranted. Referring to the gross profit ratio and legal precedents, the assessee argued for restricting the addition to align with the gross profit rate on genuine purchases. Citing a previous decision by the ITAT Mumbai and a judgment of the Jurisdictional High Court, the assessee sought a lower profit rate application on the alleged bogus purchases.

3. The Senior DR supported the lower authorities' decisions, emphasizing the lack of substantiating evidence from the assessee to validate the purchases in question. However, the Tribunal noted precedents from the ITAT Mumbai and the Jurisdictional High Court, directing a 4% profit rate application on the alleged bogus purchases, consistent with the assessee's claims and previous judgments. Consequently, the Tribunal partly allowed the assessee's appeal, directing the Assessing Officer to apply the 4% rate on the disputed purchases, in line with established legal principles.

4. The Tribunal's decision was based on the principle of aligning the profit rate on alleged bogus purchases with that of genuine transactions, as established in prior legal interpretations. By following the precedents set by the ITAT Mumbai and the Jurisdictional High Court, the Tribunal provided relief to the assessee by reducing the disputed addition to reflect a more reasonable profit rate, thereby partially allowing the appeal.

5. In conclusion, the Tribunal's decision, delivered on 18 July 2024, exemplifies the application of legal principles and precedents to determine the appropriate profit rate on alleged bogus purchases, ensuring a fair and just resolution in line with established jurisprudence.