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Facts
The Assessing Officer (AO) made additions for bogus purchases and a 12.5% gross profit on these purchases. The CIT(A) confirmed the addition for bogus purchases but deleted the addition of 12.5% gross profit. The AO also made an addition of 10% GP on the turnover, which was deleted by the CIT(A).
Held
The Tribunal held that the AO could not add 12.5% gross profit again on the bogus purchases since 100% of the bogus purchases were already added. The Tribunal also held that the AO's addition of 10% GP on the regular turnover was arbitrary and without basis, especially since the assessee was already showing a GP of 6.84%.
Key Issues
Whether the AO was justified in adding 12.5% gross profit on bogus purchases and an additional 10% on the turnover?
Sections Cited
IT Act
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Income Tax Appellate Tribunal, Mumbai “SMC” Bench, Mumbai.
Before: Shri Narender Kumar Choudhry (JM) & Shri Omkareshwar Chidara (AM)
From the order of the Ld. CIT(A), it is observed that the Ld. Assessing Officer (Ld. AO for short) made an addition of Rs. 6,91,600/- as bogus purchases by taking an entry from the entry provider. Apart from this, the Ld. AO made an addition of 12.5% as gross profit on these bogus purchases. The order of the Ld. CIT(A) shows that the total addition relating to purchase from an entry provider to the extent of Rs. 6,91,600/- was confirmed. Hence, there cannot be any grievance for the Department on this issue. Apart from the entire bogus purchases, the Ld. AO made addition of 12.5% as gross profit on the bogus purchases which was deleted by the Ld. CIT(A) and the 2 Prayas Metal (India) Pvt. Ltd. same was pointed out by the Ld. AR of the assessee during the proceedings before the Bench.
2.1. Ld. DR relied on the order of the Ld. AO. After going through the orders of the Ld. AO and the Ld. CIT(A), it is decided that the Ld. AO cannot make addition of 12.5% gross profit of Rs. 86,450/- again on the bogus purchases because 100% of the bogus purchases was already added. In other words, the order of the Ld. CIT(A) is correct and the Revenue’s appeal on this ground is dismissed.
Second main ground of the Department is the addition made by the Ld. AO on estimated GP @ 10% on the turnover which is accounted for in the books of account is correct. The assessee is already showing GP of 6.84% and hence making an arbitrary figure of 10% addition of GP on regular turnover does not have any basis, argued Ld. AR.
3.1. Ld. DR has supported the order of the Ld. AO.
3.2 After going through the orders of the AO and the Ld. CIT(A) and hearing both sides, it is decided that the action of the Ld. AO of making 10% of GP does not have any basis nor any reasoning was given for making such arbitrary addition. Since the assessee is having all supporting evidence the turnover as well as expenditure, making on adhoc addition of 10% GP on regular turnover is not correct and hence addition made by the Ld. AO in this regard is deleted and the order of the Ld. CIT(A) is upheld. Ground of appeal raised by the Revenue in this regard is dismissed.
3 Prayas Metal (India) Pvt. Ltd.
Thus both grounds raised by the Department in this appeal are devoid of any merit and the Revenue’s appeal is dismissed.
Order pronounced in the open court on 22nd October, 2024.