2024 (1) TMI 1478 - HC - Income Tax

HC upholds Tribunal's 6% income addition for bogus purchases, reducing from 12.5% under proper material analysis

The Pr. Commissioner of Income Tax 1, Surat Versus Amit Tarachand Jain

The HC upheld the Tribunal's estimation of income addition for bogus purchases at 6%, reduced from 12.5%. The court found that the Tribunal's conclusion ... Estimation of income - bogus purchases - Tribunal estimating the addition in respect of bogus purchases at rate of 6% - HELD THAT:- This Court in case of Pankaj K. Choudhary [2023 (3) TMI 1402 - GUJARAT HIGH COURT] wherein held that conclusion arrived at by the appellant Tribunal are based on material before it and after analysing the facts and figure available before it. When the Tribunal has thought it fit to reduce the disallowance at 6% from 12.5%, the Tribunal had before it the facts which were duly analysed by it. No interference is called for in the said conclusion and findings of the Tribunal in the present appeal by this court. No substantial questions of law arise in the facts of the present case. 1. ISSUES:1.1 Whether the Tribunal was justified in estimating the addition for bogus purchases at the rate of 6% of such purchases instead of disallowing 100% of the purchases, given that these purchases were alleged to be sham transactions fabricated through bogus paper concerns providing accommodation entries.1.2 Whether the Tribunal was justified in relying on the decision of the High Court in Mayank Diamonds Pvt. Ltd. to estimate addition at 6% of bogus purchases, contrary to the High Court's direction to make addition at 5% of total turnover.2. RULINGS / HOLDINGS:2.1 The Tribunal's decision to restrict the addition to 6% of the disputed purchases was upheld as 'fair and reasonable,' rejecting the 100% disallowance made by the Assessing Officer, on the basis that taxing the entire transaction is not permissible and only the income component should be taxed to prevent revenue leakage.2.2 The Tribunal's reliance on the Mayank Diamonds judgment was deemed appropriate, with the Court noting that the Tribunal considered the gross profit margin (0.78%) of the assessee in the present case, which was lower than in Mayank Diamonds, and thus a 6% addition was justified rather than 5% of turnover.3. RATIONALE:3.1 The Court applied the legal framework under the Income Tax Act, 1961, particularly Sections 143(3), 147, and 260A, and principles established in judicial precedents concerning accommodation entries and bogus purchases.3.2 The Court relied on prior decisions of coordinate Benches and High Court rulings, including the case of Pankaj K. Choudhary, which held that disallowance should be proportionate to the gross profit margin rather than 100% of purchases, thereby preventing unjust taxation of the entire transaction amount.3.3 The Court noted that the Tribunal analyzed the facts and figures, including the assessee's turnover and gross profit rates, and found no material to justify interference with the Tribunal's factual findings and conclusions.3.4 The Court also referred to a similar case involving the same group providing accommodation entries, where the Court ruled in favor of the assessee, reinforcing the approach to limit disallowance to a reasonable percentage reflecting the income component.3.5 No new substantial question of law arose as the issues were already settled by binding precedents and consistent judicial reasoning; therefore, the appeal was dismissed summarily without costs.