2025 (1) TMI 100 - AT - Income Tax

Bogus purchases - GP Rate estimation - AO had applied GP rate of 12.5% on the purchases - HELD THAT - Once the assessee had provided the details of corresponding sales on such purchases, delivery challans and the quantity of purchases alongwith payments made through banking channels backed by invoices, then without rejecting the books of accounts or corresponding sales, the trading results and Gross Profit cannot be disturbed. The sole reliance has been placed on the statement of one person who was handling affairs of these two companies and that he was providing bogus bill, addition has been made by applying higher GP rate. Nowhere has it been pointed out that in his statement he has given the name of the assessee or stated that assessee was also provided any kind of accommodation bill. Once the quantitative details of purchase and sales which tallies with the trading results and overall gross profit has been accepted and corresponding one to one sale of the purchases made from these parties alongwith delivery challans has been shown, then, no addition can be made by applying any kind of GP rate. As noted above, CIT (A) in A.Y.2016-17 has deleted the addition and in A.Y.2018-19 he has applied GP rate of 0.88% by taking difference. This difference for making addition on account of GP rate of 0.88% is not justified when there is no such finding that there is some discrepancy in the purchases and sales - The entire addition made by the ld. AO and partly confirmed by the ld. CIT (A) is deleted. Assessee appeal allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the purchases made by the assessee from SVG Style & Textile Company Pvt. Ltd. and Rathi Style & Textile Pvt. Ltd. during the assessment years 2016-17 and 2018-19 can be considered as bogus.
Whether the application of a Gross Profit (GP) rate of 12.5% by the Assessing Officer (AO) on these purchases was justified.
Whether the deletion of additions by the Commissioner of Income Tax (Appeals) [CIT(A)] based on the gross profit comparison was appropriate.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Bogus Purchases

Relevant legal framework and precedents: The case involved the assessment of income under Section 147 of the Income Tax Act, which allows for the reassessment of income if there is reason to believe that income has escaped assessment. Precedents from the Bombay High Court, such as in the case of PCIT vs. Mohammad Haji Adam & Co., were considered.
Court's interpretation and reasoning: The Tribunal noted that the assessee had provided comprehensive documentation to support the purchases, including invoices, ledger accounts, bank statements, and delivery challans. The CIT(A) had relied on the Bombay High Court's decision, which emphasized the need for concrete evidence to substantiate claims of bogus purchases.
Key evidence and findings: The evidence provided by the assessee included detailed records of purchases and corresponding sales, which were not disputed by the AO. The CIT(A) found the gross profit margins from alleged bogus purchases and genuine purchases to be comparable.
Application of law to facts: The Tribunal applied the legal principles from relevant precedents, finding that without rejecting the books of accounts or disproving the sales, the AO's reliance on a statement by a third party was insufficient to justify the additions.
Treatment of competing arguments: The Revenue's argument relied on the statement of a director involved in the alleged bogus transactions, but the Tribunal found this insufficient against the detailed evidence provided by the assessee.
Conclusions: The Tribunal concluded that the purchases could not be deemed bogus solely based on the third-party statement, especially when the quantitative details of purchases and sales were consistent.

Issue 2: Application of GP Rate

Relevant legal framework and precedents: The AO applied a GP rate of 12.5% based on the assumption of bogus purchases. The CIT(A) referenced the Bombay High Court's decision to assess the appropriateness of this rate.
Court's interpretation and reasoning: The Tribunal found that the CIT(A) correctly applied the legal principles by comparing the gross profit margins from both genuine and alleged bogus purchases, which were nearly identical.
Key evidence and findings: The CIT(A) observed that the gross profit margins on sales from both types of purchases were almost identical, leading to the conclusion that the purchases were not bogus.
Application of law to facts: The Tribunal agreed with the CIT(A) that the GP rate applied by the AO was not justified given the lack of evidence of discrepancies in the purchases and sales.
Treatment of competing arguments: The Tribunal dismissed the Revenue's argument for a higher GP rate, emphasizing the lack of evidence for any discrepancy in the trading results.
Conclusions: The Tribunal upheld the CIT(A)'s decision to delete the additions based on the GP rate, finding no justification for the AO's application of a higher rate.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "Once the quantitative details of purchase and sales which tallies with the trading results and overall gross profit has been accepted and corresponding one to one sale of the purchases made from these parties along with delivery challans has been shown, then, no addition can be made by applying any kind of GP rate."
Core principles established: The Tribunal reinforced the principle that without concrete evidence of discrepancies in trading results, additions based on alleged bogus purchases cannot be justified. The reliance on third-party statements without corroborative evidence is insufficient.
Final determinations on each issue: The Tribunal dismissed the Revenue's appeals and allowed the assessee's appeals, thereby deleting the additions made by the AO and partly confirmed by the CIT(A).

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