2024 (4) TMI 1074 - AT - Income Tax

Estimation of income - Bogus purchases - Second reopening assessment proceedings - addition @ net profit of 5.76% of the total annual turnover of the assessee has been estimated by CIT A under first reopening assessment - in this second reassessment proceedings further information was received that assessee has further obtained purchases from suspicious dealers - addition made on the basis of information received from Sales Tax Department, Maharashtra - Whether the addition is required to be made of alleged bogus purchases at the rate of hundred percent or the addition is subsumed in net profit rate already assessed in first reopening assessment? HELD THAT - It is an established principle that in case of such bogus purchases only profit embedded there in should be charged to tax if such purchases have resulted into sales. In this case the alleged bogus purchases are only Rs. 11,58,195 whereas the already sustained addition is of ₹ 5,047,947/ . Thus, according to us the learned CIT A is correct in not making any further addition to the total income of the assessee on account of alleged bogus purchases of ₹ 1,158,195/ for which the impugned reassessment order is passed. Accordingly we confirm the order of the learned CIT A. Accordingly, both the grounds raised by the learned assessing officer are dismissed.

Issues involved:
The judgment involves issues related to the assessment of income tax under section 143(3) read with section 147 of the Income Tax Act, 1961. The primary issues are whether the addition made on the basis of information received from the Sales Tax Department regarding bogus purchases is justified and whether the deletion of the addition under section 69C of the Act without proving the genuineness of purchases is valid.

Issue 1 - Addition Based on Information from Sales Tax Department:
The case involved an individual civil contractor whose income was assessed under section 143(3) read with section 147 of the Income Tax Act. The assessing officer made an addition based on information received from the Sales Tax Department regarding bogus purchases made by the assessee from dealers without actual supply of goods. The assessee failed to substantiate the claim of purchases with credible evidence, leading to the application of section 69C of the Act and a subsequent addition to the total income.

Issue 2 - Deletion of Addition under Section 69C:
Upon appeal, the CIT - A upheld the net profit rate taken in a previous order, which included all purchases. The jurisdictional ITAT decided that only the gross profit embedded in the bogus purchases should be taxed. The assessing officer contested the deletion of the addition under section 69C, arguing that the genuineness of the purchases was not established by the assessee. However, the authorized representative highlighted that previous additions had already been confirmed, and the deletion was justified based on the net profit rate estimation.

Judgment Summary:
The ITAT Mumbai considered the arguments presented by both parties. The case had been reopened multiple times due to alleged bogus purchases, with previous additions confirmed. The assessing officer's contention that a further addition was required for the alleged bogus purchases was dismissed. It was established that only the profit embedded in such purchases should be taxed, and since the previous addition already covered a significant amount, no further addition was deemed necessary. The CIT - A's decision to delete the addition under section 69C was upheld, and the assessing officer's appeal was dismissed.

This judgment emphasizes the importance of substantiating claims during assessments and highlights the principles governing the taxation of alleged bogus purchases. The decision provides clarity on the treatment of such additions and the significance of previous assessments in determining the final tax liability.

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