2024 (9) TMI 1104 - AT - Income Tax

Estimation of income - Bogus purchase u/s 69C - HELD THAT - In the circumstances only the profit element can be added to the total income of the assessee. As decided in case of MOHOMMAD HAJI ADAM CO 2019 (2) TMI 1632 - BOMBAY HIGH COURT has held that only the differential profit could be added to the total income of the assessee. In the case of the assessee the embedded differential gross profit is 11.58% for assessment year 2010 11. Accordingly, we direct the learned assessing officer to retain the addition to the extent of 11.58% of the alleged bogus purchases for both the years. Accordingly the appeal of the assessee is allowed partly.

Summary

Issues:
- Addition on account of bogus purchase under section 69C of the Income Tax Act.
- Dismissal of appeals by the National Faceless Appeal Centre.
- Assessment of total income based on alleged bogus purchases.
- Claim of the assessee regarding proof of purchases and sales.
- Disagreement between the authorized representative and the departmental representative.
- Application of the principle of adding only the differential profit to the total income.

Detailed Analysis:
1. The appeals were filed by the assessee against the appellate order of the National Faceless Appeal Centre for assessment years 2010-11 and 2011-12. The issue in both appeals revolved around the addition on account of bogus purchases totaling significant amounts. The learned assessing officer had made the additions under section 69C of the Income Tax Act, which were upheld by the CIT - A, leading to the appeals by the assessee.

2. For the assessment year 2010-11, the assessee's return of income declared a total income, but it was discovered that the assessee had obtained bogus bills from a trading company. Despite attempts to verify the purchases, including issuing notices and conducting inquiries, it was concluded that the purchases were bogus. A similar situation arose for the assessment year 2011-12, where the assessee was found to have obtained bogus invoices, leading to the addition under section 69C.

3. The authorized representative of the assessee argued that the purchases were genuine, supported by invoices, banking transactions, and sales records. The representative highlighted the consistency in gross profit margins and provided detailed quantitative data to substantiate the transactions. In contrast, the departmental representative contended that the goods were never received by the assessee, questioning the authenticity of the transactions.

4. The Tribunal carefully evaluated the contentions and referred to a relevant judgment by the Bombay High Court, emphasizing that only the differential profit should be added to the total income of the assessee in cases of alleged bogus purchases. Applying this principle, the Tribunal directed the assessing officer to retain the addition to the extent of the differential gross profit percentage, which was determined to be 11.58% for the assessment year 2010-11. Consequently, the appeals of the assessee were partly allowed based on this determination.

5. The Tribunal dismissed certain grounds of appeal as academic, ultimately allowing the appeals partially by directing the retention of the addition to the total income based on the principle of adding only the differential profit percentage. The judgment was pronounced in the open court, providing clarity on the treatment of alleged bogus purchases in the assessment process.