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Facts
The assessee's appeal is against the addition of Rs. 25,20,244/- for alleged bogus purchases during AY 2012-13. The AO received information about a search operation where the assessee was found to be a beneficiary of bogus purchase bills.
Held
The Tribunal, considering the gross profit rate and the decision of the Bombay High Court in PCIT vs. Mohommad Haji Adam & Co., directed the AO to restrict the addition to 6.19% of the disputed purchase amount.
Key Issues
Whether the addition of the entire amount of alleged bogus purchases is justified, or if it should be restricted to the profit element.
Sections Cited
Income Tax Act
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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI NARENDRA KUMAR BILLAIYA, HON’BLE & SHRI SUNIL KUMAR SINGH, HON’BLE
O R D E R
PER NARENDRA KUMAR BILLAIYA, AM :
This appeal by the assessee is preferred against the order dated 07/06/2024 by NFAC, Delhi [in short ‘ld. CIT(A)], pertaining to AY 2012-13.
The sum and substance of the grievance of the assessee is that ld. CIT(A) erred in confirming the addition of Rs. 25,20,244/- being alleged bogus purchases. The assessee claims that the addition, if any, should be restricted to the margin of profit imbibed in the alleged purchases. 3. Briefly stated the facts of the case are that the assessee filed its return of income declaring income at Rs.1,62,630/-. Subsequently, the AO received information from the DGIT (Inv.), Mumbai, that, a search action was carried out in the case of Shri Rajendra Jain, Shri Sanjay Choudhary, Shri Dharmichand Jain and their group concerns on 2 03/10/2013. During the search action, it was revealed that these persons were merely providing accommodation entries through various benami concerns operated and managed by them. The AO came to know that the assessee was one of the beneficiaries of the bogus purchase bills. The assessee was asked to explain the purchases of Rs.25,50,244/- alleged to be bogus purchases. The assessee produced books of accounts, sale purchase register along with sale and purchase invoices to show that the purchases are genuine. The reply of the assessee did not find any favour with the AO who proceeded by making addition of Rs.25,20,244/-. The assessee carried the matter before the ld. CIT(A) but without any success. 4. Before us the ld. Counsel for the assessee contended that even if the purchases of Rs.25,20,244/- are treated as bogus then also only the profit element should be added and not the entire amount. Per contra, the ld. D/R strongly supported the findings of the AO/ld. CIT(A) and read the operative part. 5. We have carefully considered the orders of the authorities below. There is no dispute that the assessee has furnished the entire trading details before the revenue authorities. It is also not in dispute that the sales have been accepted as such and only one purchase has been doubted. The total purchases during the year under consideration was to the tune of Rs.1.55 Crores and only purchase of Rs.25.50 Lakhs is disputed whereas sales of Rs.1.65 Crores have been accepted as such. The entire trading result can be understood from the following chart:-
The gross profit rate as show by the assessee in its audit report Form 3CD is 6.19%. The Hon’ble High Court of Bombay, in the case of PCIT vs. Mohommad Haji Adam & Co. reported in [2019] 103 taxmann.com 459 (Bombay), under identical situation, held as under:- “8. In the present case, as noted above, the assessee was a trader of fabrics. 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 sales 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 trader. 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 he 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