2025 (3) TMI 1478 - HC - Income Tax

Estimation of income - bogus purchases - AO estimated only 25% of the bogus purchases towards gross profit - Tribunal reduced the gross profit estimate to 10% - HELD THAT - Right from the assessment stage till the impugned proceedings the only issue involved was estimation of certain percentage of the purchases towards gross profit. The issue whether the entire purchases should have been added or not was not the subject matter right from inception but the only issue was estimation of certain percentage of profit. It is also important to note that the assessing officer s order was not subject matter of revisional proceedings under Section 263 of the Act thereby they too proceeded on a footing that the addition should be restricted only to extent of 25% and not 100%. Since the issue involved relates to only estimation of profit in our view no substantial question of law can be said to have arisen therefore the Appeal filed by the revenue is dismissed.

Summary

The Bombay High Court, in an appeal concerning assessment year 2009-10, addressed substantial questions of law relating to the disallowance of bogus purchases and the estimation of profit rate under the Income Tax Act, 1961. The Revenue challenged the Tribunal's reduction of additions from 100% to 10% on bogus purchases, citing reliance on Section 69C and the Gujarat High Court decision in N.K. Industries Ltd. v. Deputy Commissioner of Income Tax, upheld by the Supreme Court in N.K. Proteins Ltd.However, the Court found that from the assessment stage onwards, the issue was solely the estimation of gross profit percentage on purchases, not the disallowance of the entire bogus purchase amount. The Assessing Officer had estimated 25% gross profit addition, confirmed by the Commissioner of Income Tax (Appeals), and later reduced by the Tribunal to 10%. The Court noted that the assessment order was not subject to revision under Section 263, indicating acceptance of the limited addition.Concluding that "no substantial question of law can be said to have arisen" since the matter pertained only to profit estimation rather than full disallowance, the High Court dismissed the Revenue's appeal.