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Facts
For A.Y. 2015-16, the assessee's case was selected for limited scrutiny, leading to significant additions by the A.O. for alleged bogus purchases (25% disallowance), peak purchase/credit, and lump sum expenses. The CIT(A) largely sustained these additions, prompting the assessee to appeal to the Tribunal.
Held
The Tribunal, relying on the Bombay High Court judgment in Pr. Commissioner of Income Tax-17 Vs. M/s. Mohhomad Haji Adam & Company, held that additions for bogus/unproved purchases should be limited to adjusting the Gross Profit (G.P.) rate of such purchases to match that of genuine purchases. Consequently, the matter, including all connected grounds, was remanded to the Assessing Officer for a de-novo adjudication, ensuring a reasonable opportunity of hearing.
Key Issues
Proper quantification of additions for bogus/unproved purchases; confirmation of additions for peak purchase/credit and lump sum expenses; application of Gross Profit rate adjustment for bogus purchases.
Sections Cited
143(3), 145(3), 14A
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Income Tax Appellate Tribunal, RAIPUR BENCH “SMC”, RAIPUR
Before: SHRI PARTHA SARATHI CHAUDHURY
आदेश / ORDER PER PARTHA SARATHI CHAUDHURY, JM
This appeal preferred by the assessee emanates from the order of the ADDL/JCIT(A)-9, Mumbai, dated 08.11.2024 for the assessment year 2015-16 as per the following grounds of appeal on record:
1. Ld. CIT(A) erred in confirming disallowance of Rs.7,19,550/- made by the A.O out of purchase account being 25% of value of purchases made from certain parties, holding that such purchases are bogus and not genuine. Ld. CIT(A) erred in confirming action of A.O of rejecting books of accounts invoking sec. 145(3). Conclusions drawn and consequent disallowance made is arbitrary, baseless, unfounded without appreciating the facts & evidences and is not justified.
2. Ld. CIT(A) erred in confirming addition of Rs.5,53,150/- out of addition of Rs.12,72,200/- made by the A.O on account of alleged investment in bogus purchases on account of peak purchase/credit. The addition made by the A.O and confirmed by the Ld. CIT(A) is arbitrary and not justified.
3. Ld. CIT(A) erred in confirming lumpsum disallowance of Rs.2,25,000/- made by A.O out of wages, loading and unloading expenses, freight expenses and truck expenses. The disallowance made by the A.O and confirmed by the Ld. CIT(A) is arbitrary, baseless and is not justified.
4. The appellant reserves the right to add, amend or alter any grounds of appeal.”
The brief facts in this case are that the assessee had e-filed its return of income for A.Y.2015-16 on 29.09.2015, declaring an income of Rs.7,22,500/-. Subsequently, the case of the assessee was selected for limited scrutiny through CASS.
Assessment was completed by the Assessing Officer vide his order passed u/s.143(3) of the Act, dated 28.12.2017 wherein income of the assessee was determined at Rs.30,57,554/-, after making following additions/disallowances: Sr. Particulars Amount No. 1. Disallowance of 25% of the total Rs.7,19,550/- bogus purchases of [ Rs.11,99,250/-(-) Rs.47,97,000/- i.e. Rs.4,79,700/-] Rs.11,99,250/-. As the assessee had already disclosed 10% of such bogus purchases under IDS scheme 2016, therefore, rest 15% is added to the total income of the assessee. 2. Addition on account of peak Rs.12,72,700/- purchase/credit 3. Addition of lumpsum amount Rs.1,00,000/- on various expenses 4. Disallowance u/s.14A of the Act Rs.1,17,804/- 5. Addition of lumpsum amount Rs.1,00,000/- on various expenses 6. Addition of lumpsum amount Rs.25,000/- on various expenses
On appeal before the first appellate authority, the Ld. ADDL/JCIT(A)-9, Mumbai sustained the addition of Rs.7,19,550/- i.e. 25% of total bogus purchases. In so far the addition on account of peak purchase/credit, the Ld. ADDL/JCIT(A)-9, Mumbai confirmed the addition of Rs.5,53,150/- out of total addition of Rs.12,72,200/-. The Ld. ADDL/JCIT(A)-9, Mumbai had also sustained the total addition of Rs.2,25,000/- made by the Assessing Officer out of wages loading and unloading expenses, freight expenses and truck expenses.
The assessee being aggrieved with the order of the Ld. ADDL/JCIT(A)-9, Mumbai has carried the matter in appeal before the Tribunal.
The Ld. Counsel for the assessee submitted that the issue involved in the present appeal squarely covered by the judgement of the Hon’ble High Court of Bombay in the case of Pr. Commissioner of Income Tax-17 Vs. M/s. Mohhomad Haji Adam & Company, of 2016, dated 11.02.2019 which had also been followed by this bench in the case of DCIT-1(1), Raipur Vs. M/s. Jaggannath Enterprises, & 376/RPR/2024, dated 26.09.2024. The proposition which had been laid down by the Hon’ble High Court is that the addition in the hands of the assessee as regards the bogus/unproved purchases was to be made to the extent of bringing the G.P rate of such purchases at the same rate of other genuine purchases.
Per contra, the Ld. Sr. DR fairly submitted that the matter may be remanded to the file of the A.O for de-novo adjudication.
I have considered the submissions made by the both the parties and facts and circumstances involved in the present case. Apropos the quantification of profit which the assessee would have made by procuring the goods in question from the open/grey market is concerned, I find that the Hon’ble High Court of Bombay in the case of Pr. Commissioner of Income Tax-17 Vs. M/s. Mohhomad Haji Adam & Company, of 2016, dated 11.02.2019 while upholding the order of the Tribunal, had observed, that the addition in the hands of the assessee as regards the bogus/unproved purchases was to be made to the extent of bringing the G.P rate of such purchases at the same rate of other genuine purchases. The Hon’ble High Court while concluding as hereinabove had observed as under:
“8. In the present case, as noted above, the assessee was a trader of brics. The A.O found three entities who were indulging in bogus billing activities. A.O. found that the purchases made by the assessee from these entities were bogus. This being a finding of fact, we have proceeded on such basis. Despite this, the question arises whether the Revenue is correct in contending that the entire purchase amount should be added by way of assessee's additional income or the assessee is correct in contending that such logic cannot be applied. The finding of the CIT(A) and the Tribunal would suggest that the department had not disputed the assessee's sales. There was no discrepancy between the purchases shown by the assessee and the sale declared. That being the position, the Tribunal was correct in coming to the conclusion that the purchases cannot be rejected without disturbing the sales in case of a trade. The Tribunal, therefore, correctly restricted the additions limited to the extent of bringing the G.P. rate on purchases at the same rate of other genuine purchases. The decision of the Gujarat High Court in the case of N.K. Industries Ltd. (supra) cannot be applied without reference to the facts. In fact in paragraph 8 of the same Judgment the Court held and observed as under- "So far as the question regarding addition of Rs.3,70,78,125/- as gross profit on sales of Rs.37.08 Crores made by the Assessing Officer despite the fact that the said sales had admittedly been recorded in the regular books during Financial Year 1997-98 is concerned, we are of the view that the assessee cannot be punished since sale price is accepted by the revenue. Therefore, even if 6 % gross profit is taken into account, the corresponding cost price is required to be deducted and tax cannot be levied on the same price. We have to reduce the selling price accordingly as a result of which profit comes to 5.66% Therefore, considering 5.66 % of Rs.3,70,78,125/- which comes to Rs.20,98,62 1.88 we think it fit to direct the revenue to add Rs.20,98,621.88 as gross profit and make necessary deductions accordingly. Accordingly, the said question is answered partially in favour of the assessee and partially in favour of the revenue."
9. In these circumstances, no question of law, therefore, arises. All Income Tax Appeals are dismissed, accordingly. No order at costs."
It was, thus, observed by the Hon’ble High Court that the addition in respect of the purchases which were found to be bogus in the case of the assessee before them, who was a trader, was to be worked out by bringing the G.P. rate of such bogus purchases at the same rate as that of other genuine purchases. On the basis of the aforesaid observations of the Hon’ble High Court, I am of the considered view that on the same lines the profit made by the assessee in the case before me by procuring the goods at a discounted value from the open/grey market can safely be determined by bringing the G.P rate of such bogus purchases at the same rate as that of the other genuine purchases.
I, thus, in terms of the aforesaid observations restore the matter to the file of the A.O, with a direction to him to restrict the addition in the hands of the assessee qua the impugned bogus/unverified purchases by bringing the GP rate of such bogus purchases at the same rate as that of the other genuine purchases. As the issue of addition on account of bogus purchases is remanded to the file of the Assessing Officer for de-novo adjudication, therefore, remaining all other connected grounds are also remanded to his file for de-novo adjudication. Needless to say, the Assessing Officer shall in the course of denovo proceedings shall afford a reasonable opportunity of being heard to the assessee in accordance with law with a direction to adjudicate the same within three (3) months from the date of receipt of the order.
As per the aforesaid terms, the grounds of appeal Nos.1 to 3 raised by the assessee stands allowed for statistical purposes.
In the result, appeal of the assessee is allowed for statistical purposes.
Order pronounced in open court on 18th day of March, 2025.