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Facts
The assessee, engaged in trading ferrous and non-ferrous metals, had its assessment reopened based on information about bogus purchases. The AO added the entire alleged bogus purchases as unexplained expenditure. The CIT(A) held that only the profit element embedded in these purchases could be added.
Held
The Tribunal held that if there is no discrepancy between purchases and sales, purchases cannot be rejected outright. The addition should be limited to applying the GP rate on purchases, aligning with the GP rate of genuine purchases, which was determined to be 1% for both assessment years.
Key Issues
Whether entire bogus purchases can be added as unexplained expenditure, or only the profit element embedded therein, considering no discrepancy in sales and purchases.
Sections Cited
147, 143(3), 44AB, 133A, 133(6)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘D’ BENCH
आदेश / O R D E R PER BENCH: The aforesaid cross appeals have been filed by the Revenue as well as by the assessee against order passed by CIT(A)-51 of even date 29/10/2024 for the A.Y.2007-08 to 2009-10 for the quantum of assessment passed u/s.147 / 143(3).
In the Revenue’s appeal, the department has challenged the deletion of addition made on account of alleged bogus purchases by applying GP rate of 3%; whereas ld. AO has made addition of entire bogus purchases of Rs. 86,14,434/- in A.Y.2007-08 and Rs.10,50,38,208/- in the A.Y.2009-10, whereas assessee has challenged the application of GP rate of 3% and also challenged the validity of reopening u/s.147.
We will take up the appeal for A.Y.2007-08.
The brief facts are that assessee is engaged in the business of trading in steel pipe, sheet coils and plates, i.e. ferrous and non-ferrous metals. The assessee has been maintaining regular books of accounts which were also audited u/s.44AB. Earlier, Metalex Tube Industries the assessment was completed u/s.143(3) vide order dated 09/12/2009 assessing total income at Rs.4,82,800 as against return of income of Rs.4,52,804/-. The assessee’s case was reopened on the basis of information received by DGIT (Investigation) regarding various beneficiaries who have booked bogus purchases in the name of various parties in different financial years as per the information received from Sales Tax department. In the case of the assessee a survey was also conducted u/s.133A wherein it was found that assessee had made purchases from these parties which were found to be bogus. During the year, assessee has made purchases from four parties who are alleged to be providing hawala bogus purchase bills which aggregated to Rs.86,14,434/-. The ld. AO had sent notices u/s. 133(6) to all these parties, however, same were not served. The assessee has claimed purchases at Rs.23 Crores and the alleged bogus purchases was Rs.86,00,000/-. The assessee had disclosed GP of 2.09% which included the purchases made from the aforesaid parties. The ld. AO based on the information and that none of the parties were found at the address given when the notices were sent u/s.133(6), has treated the entire purchase of Rs.86,14,434/- as unexplained expenditure.
The ld. CIT (A) held that once sales are not disputed and there cannot be any sales without any purchases and therefore, only profit element embedded in the purchases can be added. Relying upon the ratio and principle laid down on the judgment of the Hon’ble Bombay High Court in the case of PCIT vs. Mohammad Haji Adam & Co., reported in 103 taxmann.com Metalex Tube Industries 459 has upheld the application of GP rate once there is no discrepancy between the purchases shown and sales declared. The ld. CIT(A) noted that assessee disclosed GP rate of 2.09% on accepted purchase and GP rate of 1.15% on the bogus purchase included. Accordingly, he has estimated GP rate of 3% on bogus purchases.
Before us ld. Counsel submitted that the Tribunal in assessee’s case in the subsequent year has applied GP rate of 0.02% and therefore, at the most GP rate should be applied is 0.02%.
After hearing both the parties and on perusal of the facts and material placed on record, we find that all these purchases have been made through account payee cheques and the sources of purchases are from the books. The quantitative details of purchases and corresponding sales and closing stock have not been disturbed by the ld. AO. Thus, we agree with the ld. CIT (A) that in view of these facts, the principle laid down by the Hon’ble Bombay High Court in the case of Mohammad Haji Adam & Co (supra) is squarely applicable wherein the Hon’ble High Court has held that if there is no discrepancy between the purchases shown by the assessee and the sales declared then, the purchases cannot be rejected and entire purchase cannot be added. Thus, addition has to be limited to the extent of applying GP rate on purchases at the same rate of other genuine purchases. Here in this case assessee has made purchases showing GP rate of 2.09% on genuine/accepted purchases and Metalex Tube Industries has shown GP of 1.15% on alleged bogus purchases. Accordingly, we hold that further addition on account of GP rate of 1% should be applied on the alleged bogus purchases which would be approximately at par with the GP rate of genuine purchases. Thus, GP rate on alleged bogus purchases is restricted from 3% to 1%.
Similarly for the A.Y.2009-10 the alleged bogus purchases from 17 parties was to the extent of Rs. 10,50,38,208/-. Ld. CIT(A) has held that GP rate of 3% should be applied. Here in this case we find that assessee has shown GP rate of 3.12% and GP rate by alleged bogus purchases was 4.09% and on accepted purchases at 1.29%. Since GP rate in bogus purchases is 4.09% and GP rate in normal purchases was shown at 1.29%, thus the average GP rate was 3.12%. Thus, in this year also consistent with the earlier year, we hold that the addition should be restricted by applying GP rate of 1% on the alleged bogus purchases. Thus, in both the years GP addition is restricted to 1% on the alleged bogus purchases.
In so far as legal issue raised by the assessee wherein the same is not adjudicated as we have already decided the issue on merits and hence, they are kept open.
In the result, appeals of Revenue are dismissed and appeals of the assessee are partly allowed. Order pronounced on 25th February, 2025.