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Facts
The Revenue filed an appeal against the NFAC's order concerning the quantum of assessment for AY 2011-12. The case involved alleged bogus purchases of Rs.16,17,386/-, which the AO had treated as income, applying a GP rate of 12.5%. The assessee provided details of purchases and payments, but the AO rejected them based on information from the Maharashtra Sales Tax department.
Held
The Tribunal noted that the assessee had provided details of purchases and their sources, and payments were made via account payee cheques. Similar to previous proceedings for AY 2011-12, the CIT(A) had restricted the disallowance to a GP rate of 12.5%. The Tribunal also cited the Bombay High Court's decision in Mohammad Haji Adam & Co. which upheld the application of GP rate on bogus purchases.
Key Issues
Whether the entire amount of alleged bogus purchases should be added to the income, or if a Gross Profit (GP) rate is a more appropriate method of estimation, especially when details of purchases and payments have been provided.
Sections Cited
147, 143(3), 148, 92CA(4), 154, 115JB
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Income Tax Appellate Tribunal, ‘D’ BENCH
आदेश / O R D E R PER AMIT SHUKLA (J.M): The aforesaid appeal has been filed by the Revenue against order dated 10/10/2024 passed by NFAC, Delhi for the quantum of assessment passed u/s.143(3) r.w.s. 147 for the A.Y.2011-12.
In the grounds of appeal Revenue has challenged the order of the ld. CIT(A) relating to bogus purchase of Rs.16,17,386/- which was added by the ld. AO and thereby, applying GP rate of 12.5%.
1. Duflon Industries Pvt.Ltd., 3. From the perusal of the assessment order it is seen that assessee has filed return of income on 28/09/2011 declaring total income of Rs.1,17,18,877/-. Thereafter, assessment was completed u/s. 143(3) vide order dated 24/03/2015 determining total income of Rs.7,76,11,200/-. Thereafter, assessee’s case was reopened u/s.147 by issuance of notice u/s.148 dated 29/03/2016 on the ground that assessee has taken entry of bogus purchases of Rs.30,00,000/- and this information was received from the website of Maharashtra Sales Tax department who had declared certain parties as ‘hawala traders’. The ld. AO noted that assessee has taken purchases from third parties of Rs.16,17,386/- from the following parties:-
S.No. Name of the Amount of assessee Purchase 1 A.P. Enterprises 927649 2 R.N. Enterprise 7200 3 Ridhi Associates 682537 Total 1617386
In response to the show-cause notice assessee had submitted the details of purchases and the payment made through account payee cheques etc., However, the ld. AO rejected the same on the basis of information on the website of the Sales Tax department of Maharashtra that these parties were found to be hawala dealers and treated the entire bogus purchases of Rs.16,17,386/- as income of the assessee.
Duflon Industries Pvt.Ltd., 5. The ld. CIT(A) following the ld. CIT(A) order for A.Y.2011- 12 which was against order of ld. AO u/s.143(3) r.w.s. 92CA(4) wherein GP rate of 12.5% was applied on such bogus purchases accordingly, the addition was restricted to apply GP rate of 12.5%.
After hearing both these parties and on perusal of the facts on record it is seen that it is not in dispute that assessee has given details of purchases and also the source of purchases were from the books and made through account payee cheques. On similar facts in the original quantum proceedings u/s. 143(3) ld. CIT (A) has applied GP rate of 12.5%. Before this Tribunal in the appeal for A.Y.2011-12, similar matter had come up wherein ld. CIT (A) has restricted the disallowance by applying GP rate of 12.5% on alleged bogus purchases, however, ld. AO has added the entire bogus purchases in the proceedings u/s.154 while computing book profit. The Tribunal had deleted the said addition on book profit stating that it is beyond the scope of u/s.115JB. In any case, application of GP rate on bogus purchases has now been upheld by the Hon’ble Bombay High Court in the case of Mohammad Haji Adam & Co., reported in 103 taxmann.com 459. Accordingly, appeal filed by the Revenue is dismissed.
Order pronounced on 24th February, 2025.