2024 (6) TMI 103 - AT - Income Tax

Estimation of income - bogus purchases - HELD THAT - No doubt purchases made by the assessee have been proved as bogus purchases based on the fictitious invoices by the authorities below. However it is settled law that entire amount of alleged bogus purchases cannot be added/disallowed in entirety but the profit element embedded therein can only be considered for making addition. Revenue department has made addition @ 12.5% of the alleged bogus purchases therefore in order to maintain the consistency we are inclined to restrict the addition to the extent of 12.5% of the amount of alleged bogus purchases or the profit shown by the assessee voluntarily which ever would be higher. Appeal filed by the assessee stands allowed.

Summary

Issues involved: Assessment u/s 144 read with u/s 147 - Addition u/s 69C - Challenge before CIT(A) - Appeal before ITAT

In the instant case, the Assessing Officer made an addition u/s 69C of the I.T. Act on account of fictitious invoices in the name of bogus parties. The ld. CIT(A) affirmed the addition, leading the assessee to appeal before ITAT. The Assessing Officer had made a similar addition in a previous assessment year, which was only 12.5% of the total amount of bogus purchases. The ITAT considered the settled law that only the profit element of alleged bogus purchases can be added, and decided to restrict the addition to 12.5% of the amount of alleged bogus purchases or the profit shown by the assessee voluntarily, whichever is higher. Consequently, the appeal filed by the assessee was allowed.

The ITAT, in its judgment, addressed the issue of adding alleged bogus purchases to the total income of the assessee. It considered the approach taken by the Revenue department in a previous assessment year and decided to maintain consistency by limiting the addition to 12.5% of the amount of alleged bogus purchases or the voluntarily shown profit by the assessee. This decision was based on the settled law that only the profit element of such purchases should be considered for addition.

The ITAT's decision was influenced by the principle that the entire amount of alleged bogus purchases should not be added in entirety, but only the profit element embedded within them. By referencing the approach taken by the Revenue department in a previous assessment year, the ITAT chose to restrict the addition to 12.5% of the alleged bogus purchases or the profit voluntarily shown by the assessee, whichever amount was higher. This reasoning led to the allowance of the appeal filed by the assessee.

The ITAT's judgment highlighted the importance of considering the profit element within alleged bogus purchases when making additions to the total income of the assessee. By referencing a previous assessment year and the approach taken by the Revenue department, the ITAT decided to restrict the addition to 12.5% of the alleged bogus purchases or the profit voluntarily shown by the assessee. This decision was based on the settled law that only the profit element of such purchases should be added, leading to the allowance of the appeal filed by the assessee.