2024 (1) TMI 1479 - HC - Income Tax

HC upholds 6% income addition for bogus purchases under proper fact analysis, rejecting 12.5% rate increase

The Pr. Commissioner of Income Tax 1, Surat Versus Atul Kailashchand Mehta

The HC upheld the Tribunal's estimation of income addition at 6% for bogus purchases, affirming the reduction from 12.5% was based on proper analysis of ... 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. ISSUES: Whether the Tribunal was justified in estimating the addition in respect of bogus purchases at the rate of 6% of such purchases instead of disallowing 100% of the purchases alleged to be fabricated through bogus paper concerns providing accommodation entries'Whether the Tribunal was justified in relying on a precedent to estimate addition at 6% of bogus purchases rather than following a High Court direction to make addition at 5% of total turnover? RULINGS / HOLDINGS: The Tribunal's reduction of disallowance on bogus purchases from 100% to 6% was upheld as 'fair and reasonable,' recognizing that tax authorities are entitled to tax only the income component of disputed transactions to prevent revenue leakage, not the entire transaction amount.The Tribunal's reliance on the precedent reducing disallowance to 6% was affirmed, notwithstanding the High Court's direction of 5% addition in a different case, due to differences in facts such as gross profit rates and turnover, making the 6% disallowance appropriate in the present case. RATIONALE: The legal framework applied includes Section 260A of the Income Tax Act, 1961, and principles established in prior judicial pronouncements regarding disallowance of bogus purchases and accommodation entries.The Tribunal and the Court relied on the principle that tax authorities should impose disallowance reflecting the income benefit derived from bogus transactions rather than the full value, supported by analysis of gross profit margins and turnover.Precedents from coordinate benches and High Court decisions, including the case involving the same group providing accommodation entries, were applied to maintain consistency and reasonableness in disallowance percentages.No new substantial question of law was found to arise as the issues were already settled by existing judicial decisions, leading to summary dismissal of the appeal.