CIT(A) correctly restricted bogus purchase disallowance to gross profit rate following binding jurisdictional precedent over Gujarat decision

ITAT Mumbai upheld CIT(A)'s decision restricting bogus purchase disallowance to gross profit rate instead of entire amount. CIT(A) correctly followed binding jurisdictional HC precedent rather than Gujarat HC decision whose SLP was summarily dismissed by SC. Revenue's appeal challenging the restricted disallowance approach was dismissed, confirming that bogus purchases should be disallowed only to extent of profit margin earned on genuine purchases.

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Issues:
1. Whether the Ld.CIT(A) was justified in restricting the addition made by the A.O. in a case involving accommodation entries.
2. Whether the Ld.CIT(A) failed to uphold the decision of the Hon'ble Apex Court in a specific case.
3. Whether the Ld.CIT(A) was justified in directing the AO to compute the addition/disallowance based on the gross profit rate of alleged bogus purchases.

Analysis:

Issue 1:
The case involved the AO making additions for alleged bogus purchases of diamonds by the assessee. The Ld.CIT(A) deleted the addition based on findings from a previous assessment year where the sales were vouched for by the parties involved in the alleged bogus purchases. The Ld.CIT(A) directed the AO to compute the addition/disallowance based on the gross profit rate of genuine purchases, following judicial precedents. The Ld.CIT(A) relied on the judgment of the Hon'ble Bombay High Court and directed the AO to provide a reasonable opportunity for the appellant to represent their case.

Issue 2:
The Revenue contended that the Ld.CIT(A) did not follow the decision of the Hon'ble Supreme Court in a specific case where 100% of the addition was confirmed. The assessee argued that the Supreme Court's dismissal of the Special Leave Petition (SLP) did not establish any law as a precedent. The Tribunal noted that the dismissal of an SLP summarily does not constitute a declaration of law and cannot be treated as a binding precedent. Citing previous Supreme Court judgments, the Tribunal held that a summary dismissal of an SLP does not imply acceptance of the decision being challenged.

Issue 3:
The key issue was whether the Ld.CIT(A) was required to follow the decision of the Hon'ble Supreme Court in a specific case regarding the disallowance of bogus purchases. The Tribunal observed that the Ld.CIT(A) had correctly followed the binding precedent of the Hon'ble Delhi High Court in restricting the addition/disallowance to the gross profit earned on non-bogus purchases. The Tribunal emphasized that the summary dismissal of an SLP does not establish a legal precedent. Therefore, the Tribunal upheld the Ld.CIT(A)'s decision to follow the precedent set by the Hon'ble Delhi High Court.

In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the Ld.CIT(A)'s decision to restrict the addition based on the gross profit rate of genuine purchases and to not follow the summary dismissal of the SLP as a binding precedent.

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