2024 (7) TMI 1369 - AT - Income Tax

Loss in respect of embezzlement of stock by an employee - loss of jewellery/ stock - HELD THAT - The assessee has not only been able to substantiate its claim, but has also filed all the relevant evidences to prove that there was an actual embezzlement. All these explanation and material on record proves beyond doubt the loss of jewellery/ stock claimed by the assessee and we reject the finding and the reasoning given by the authorities below. Accordingly, we hold that the loss claimed by the assessee during the year on account of embezzlement of stock is allowed and disallowance made by the AO is deleted. Accordingly, the appeal of the assessee is allowed. Estimation of income - Bogus purchases - report based on information on portal of Maharashtra VAT department about few dealers providing bogus bills, deduced that the assessee has taken accommodation entries - HELD THAT - As in case Ashwin Purshotam Bajaj 2023 (8) TMI 770 - BOMBAY HIGH COURT held that section 69 is not applicable to such bogus purchases and only profit has to be added and their Lordships have also held that, once the sales have not been doubted against the said purchases and there is no dispute regarding the quantitative details of stock as per books then the ld. A.O. cannot add the entire purchase and only GP rate is to be applied. Similar view has also been taken in the case Rishabhdev Technocable Ltd. 2020 (2) TMI 662 - BOMBAY HIGH COURT Moreover, we find that in case of the assessee for A.Y. 2007-08, 2008-09 and 2009-10, this Tribunal had applied GP rate of 3% over and above the GP rate declared by the assessee. Accordingly, in the facts and circumstances of the case, the gross profit of 3% is applied over and above the GP rate declared by the assessee on the bogus purchase. Accordingly, the assessee gets part relief.

Summary

Issues Involved:
1. Disallowance of claim of loss due to embezzlement of business stock.
2. Addition on account of bogus purchases.

Issue-wise Detailed Analysis:

1. Disallowance of Claim of Loss Due to Embezzlement of Business Stock:
The assessee, a partnership firm engaged in the business of manufacturing, purchasing, and selling gold and diamond jewelry, claimed a loss of Rs. 1,32,14,143/- due to embezzlement of stock by an employee. The assessee filed an FIR on 29.09.2010 for theft of Rs. 9,50,000/-, which was later revised to Rs. 1,32,18,143/- after tallying the stock. The AO disallowed the claim, questioning the delay in lodging the FIR and the lack of immediate recovery efforts. The CIT (A) upheld the AO's decision, not admitting the police report as additional evidence and doubting the genuineness of the theft claim.

Upon review, the Tribunal noted that the assessee provided substantial evidence, including the FIR, police reports, and details of the stolen items. The Tribunal found no reason to disbelieve the embezzlement, criticizing the AO and CIT (A) for dismissing the claim without proper consideration of the evidence. The Tribunal highlighted the detailed rebuttal provided by the assessee, addressing the AO's contentions about the delay in filing the FIR and the nature of the stock records. The Tribunal concluded that the loss due to embezzlement was genuine and allowed the claim, deleting the disallowance of Rs. 1,32,14,143/-.

2. Addition on Account of Bogus Purchases:
For the A.Y. 2012-13, the assessee faced an addition of Rs. 53,84,050/- due to alleged bogus purchases from M/s. Aadi Impex and M/s. Kalash Enterprises, based on information from the DGIT (Investigation) and Maharashtra VAT department. The AO treated the entire purchase as bogus, citing involvement in providing accommodation entries. The CIT (A) confirmed this addition.

The Tribunal reviewed the evidence, including purchase details, banking transactions, and corresponding sales. The Tribunal noted that the assessee provided comprehensive documentation, such as ledger accounts, confirmations, and bank statements. The Tribunal referred to precedents, including decisions by the Hon'ble Bombay High Court, which held that only profit should be added in cases of bogus purchases, not the entire purchase amount. The Tribunal applied a gross profit rate of 3% over and above the declared GP rate, resulting in an addition of Rs. 1,61,520/- instead of the entire Rs. 53,84,050/-. Consequently, the appeal for A.Y. 2012-13 was partly allowed, granting partial relief to the assessee.

Conclusion:
The Tribunal allowed the appeal for A.Y. 2011-12, recognizing the genuineness of the embezzlement loss, and partly allowed the appeal for A.Y. 2012-13, adjusting the addition based on a reasonable gross profit rate. The judgments emphasize the importance of thorough evidence and proper consideration in tax assessments.