2024 (12) TMI 308 - AT - Income Tax

Estimation of income - bogus purchases - CIT(A) after following the decision of Mohammad Haji Adam Co. 2019 (2) TMI 1632 - BOMBAY HIGH COURT restricted the additions to the extent of gross profit declared on genuine purchases - HELD THAT Following the decision of Mohammad Haji Adam Co. supra we do not find any reason to interfere in the decision of ld. CIT(A). Decided against revenue.

Summary

Issues Involved:

1. Justification of restricting the addition on account of bogus purchases to the extent of gross profit margin on genuine purchases.
2. Deletion of addition made on account of unproved purchases.

Detailed Analysis:

Issue 1: Justification of restricting the addition on account of bogus purchases to the extent of gross profit margin on genuine purchases

The revenue challenged the decision of the CIT(A) to restrict the addition on account of bogus purchases to the extent of the gross profit margin on genuine purchases. The assessing officer had initially added an amount equivalent to 5% of the value of purchases made from certain entities, suspecting that the purchases were made from the grey market to avoid taxes. The CIT(A), however, followed the precedent set by the Bombay High Court in the case of Mohammad Haji Adam & Co., which held that additions should be limited to the extent of the gross profit margin on genuine purchases, as the sales were not disputed. The Tribunal upheld the CIT(A)'s decision, emphasizing that the sales were accepted, and the purchases could not be rejected without disturbing the sales. The Tribunal found no reason to interfere with the CIT(A)'s decision, dismissing the revenue's appeal.

Issue 2: Deletion of addition made on account of unproved purchases

The assessing officer had based the additions on information from the investigation into the Bhanwarlal Jain Group, which was found to be issuing bogus bills. The assessee argued that all necessary documentation was provided, including purchase invoices, bank statements, and confirmations from the parties involved. The CIT(A) noted that the assessing officer did not conduct independent inquiries or issue notices to verify the transactions, which violated the principles of natural justice. The CIT(A) found that the appellant had provided substantial evidence to support the genuineness of the transactions and that the assessing officer's reliance solely on external information without verification was insufficient to sustain the additions. The Tribunal concurred with the CIT(A)'s decision to delete the addition, as the burden of proof was not adequately discharged by the revenue.

In conclusion, the Tribunal dismissed all eight appeals filed by the revenue, affirming the CIT(A)'s decision to restrict the additions to the extent of the gross profit margin on genuine purchases and to delete the addition made on account of unproved purchases. The Tribunal's decision was consistent with the legal precedents and the principles of natural justice.