2023 (5) TMI 1100 - AT - Income Tax

Additions towards Bogus purchases - Estimation of profit - companies are engaged in providing accommodation entries or sending bogus foreign remittances to entities based in Hong Kong and UAE in guise of bogus import purchases - HELD THAT:- CIT- A has correctly considered that the purchases from these parties is genuine when part of purchases from the same parties is not disputed, even otherwise, even if it is held that the purchases from these parties are bogus, then also, the proper course would be to determine the profit arising from the purchases by looking at corresponding sales and what amount of gross profit is earned on alleged bogus purchases.

If the alleged bogus purchases show gross profit higher than the regular gross profit shown by the assessee, no further addition is required to be made in the hands of the assessee. The logic behind this is that sale is already accounted for on the credit side of the profit and loss account.

Purchases are to be removed, the corresponding sale is also required to be removed from the profit and loss account, sales is higher than the purchases in rupees terms, therefore, the addition would be only required to be made to the extent of lower gross profit on alleged bogus purchases then the regular gross profit. It is not the case of the AO that amount invested in acquiring the bogus purchases should also be considered as an addition, because the only addition is disallowance of bogus purchases, no further addition is warranted.

Disallowance of commission expenditure - HELD THAT:- As commission has been paid on export of diamond stating the details of exports made by the assessee, respective commission and details of service tax collected thereon. The assessee has also produced the details of other commission expenditure incurred by the assessee at page number 65 onwards, which are also identical. There is no reason to differentiate between the nature of services rendered by the commission expenditure accepted by the assessee as genuine and the details of alleged bogus commission expenditure. We do not find any infirmity in the order of the learned CIT – A in deleting the disallowance of commission expenditure. Therefore, ground number 3 of the appeal is dismissed.