2024 (9) TMI 856 - AT - Income Tax

Estimation of income - Bogus purchases - Addition restricted by CIT(A) to 4% - HELD THAT - Now we have binding juduicial precedents of Honourable Bombay High court in Mohommad Haji Adam Co 2019 (2) TMI 1632 - BOMBAY HIGH COURT We find that the assessee has shown the N.P. @ 5.97% on total purchases of Rs. 367,24,497/-. Out of that the tainted purchases are stated to be Rs. 30,67,810/-. Assessee has shown that the goods which were purchased from M/s Keshav Impex have been sold for Rs. 33,06,992/- whereas the purchases are 30,67,810/-. As the assessee has shown profit of approximately 10% which is higher than the regular N.P. shown by the assessee, naturally no further addition is required to be made. Therefore, we direct AO to delete the addition. Appeal of the assessee is allowed.

Summary

Issues:
Appeal against appellate order on hawala purchases addition.

Analysis:
The appeal was filed against the appellate order passed by the National Faceless Appeal Centre for the Assessment Year 2012-13. The issue revolved around the addition on account of impugned hawala purchases, which the assessee contended should have been deleted entirely instead of being restricted to 4%. The case involved the assessee, a jewelry manufacturing and reselling company, which initially filed its return of income without scrutiny. However, information about bogus hawala purchases led to a reassessment under section 147 of the Income Tax Act. The Assessing Officer alleged that the purchases were accommodation bills without actual goods being bought, resulting in a total income addition. The assessee challenged this before the CIT(A), who, following judicial precedents, restricted the addition to 4% of the disputed amount.

The main argument during the appeal was that the addition was excessive and should be restricted further to 1%. The Departmental Representative supported the CIT(A)'s order. The Tribunal carefully considered the contentions and lower authorities' orders. The crux of the issue was the genuineness of the alleged bogus purchases. The Assessing Officer had added 100% of the amount, but the CIT(A) limited it to 4% based on ITAT precedents. However, the Tribunal referred to a binding precedent from the Bombay High Court, which indicated that no further addition was necessary. The assessee had shown a higher profit margin on the tainted purchases, indicating the transactions' genuineness. Consequently, the Tribunal directed the Assessing Officer to delete the addition, thereby allowing the assessee's appeal.

In conclusion, the Tribunal's decision favored the assessee, emphasizing the importance of proving the genuineness of transactions and considering profit margins in such cases. The judgment highlighted the significance of judicial precedents and the need for thorough documentation and evidence to support income tax assessments.