2023 (4) TMI 805 - AT - Income Tax

Tribunal directs AO to quantify profit element aligning rates, remands case for fair opportunity.

M/s. Shanti Parboiling Industries Versus The Assistant Commissioner of Income Tax, Circle-2 (1), Raipur (C.G.)

The Tribunal allowed the appeal for statistical purposes, directing the Assessing Officer to quantify the profit element by aligning the Gross Profit rate ... Estimation of income - bogus purchase - HELD THAT:- Profit made by the assessee in the case before us 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. We, thus, 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. A.O in the course of the set-aside proceedings shall quantify the profit element which the assessee company would have made by procuring the goods in question at a discounted value from open/grey market after considering the judgment of M/s. Mohhomad Haji Adam & Company [2019 (2) TMI 1632 - BOMBAY HIGH COURT] - Appeal of the assessee is allowed for statistical purposes Issues Involved:1. Jurisdiction of CIT(A) to sustain the addition of Rs. 48,16,049 on alleged bogus purchases.2. Justification of CIT(A) in upholding the rejection of the declaration under the Income Disclosure Scheme 2016.3. Error by the AO in holding purchases as 'bogus' based on third-party statements.4. Justification of disallowance of 25% of total purchases.5. Legality of invoking Section 145(3) of the Act and rejection of books of accounts.6. Violation of principles of natural justice by not allowing cross-examination.7. Quantum of addition sustained by CIT(A) as arbitrary and excessive.8. Assessee's right to amend grounds of appeal.Summary:Condonation of Delay:The appeal involved a delay of 39 days due to the authorized signatory being out of station and festivals. The delay was condoned considering the ongoing Covid-19 pandemic and the Supreme Court's orders extending the limitation period.Bogus Purchases:The AO identified purchases totaling Rs. 2,97,87,500 from four parties as bogus based on a survey operation and statements from brokers admitting to providing bogus bills. The assessee failed to substantiate the genuineness of these purchases with supporting documentary evidence like delivery challans or weighbridge slips.Rejection of Books of Accounts:The AO rejected the books of accounts under Section 145(3) of the Act, treating the entire purchase amount as bogus. However, the AO allowed credit for the amount declared under the Income Disclosure Scheme 2016, resulting in a net addition of Rs. 48,16,049.CIT(A) Decision:The CIT(A) upheld the AO's decision, justifying the disallowance of 25% of the value of the impugned purchases.Tribunal's Analysis:The Tribunal agreed with the lower authorities that the assessee failed to prove the genuineness of the purchases. However, it found no cogent reason for the 25% disallowance rate used by the AO and CIT(A). The Tribunal referred to the Bombay High Court's decision in Pr. Commissioner of Income Tax-17 Vs. M/s. Mohhomad Haji Adam & Company, which held that the addition should be restricted to the profit element by bringing the Gross Profit (GP) rate of bogus purchases to the same rate as genuine purchases.Conclusion:The Tribunal restored the matter to the AO to quantify the profit element by bringing the GP rate of bogus purchases to the same rate as genuine purchases, considering the Bombay High Court's judgment. The AO is directed to afford a reasonable opportunity of being heard to the assessee during the set-aside proceedings.Result:The appeal of the assessee was allowed for statistical purposes.