TMI Blog2020 (12) TMI 988X X X X Extracts X X X X X X X X Extracts X X X X ..... in the opening and closing stock by the assessee. In this view, we do not find any infirmity in the order of the Ld. CIT(A), so far as it relates to rejecting the claim of the assessee of double addition. Alternative arguments of the Ld. AR that in the case of bogus purchases, if they are not written off or reduced from the closing stock then, necessarily in the sale price the same is included and therefore, only gross profit on the same can be added - We find that the above arguments also supported by relying on Simit P. Sheth [ 2013 (10) TMI 1028 - GUJARAT HIGH COURT] - The assessee has shown that in the year ending March, 2012, the gross profit ratio of the assessee is 9.25%. We direct the Ld. Assessing Officer to retain the addition @9.25% of ₹ 2.44 crores of ₹ 22,57,000/- deserve to be retained and the balance addition of ₹ 2,21,43,000/- deserve to be deleted. The reasons being that once the bogus purchases have gone into the profit and loss account, and necessary sales have not been doubted, only option left with the revenue is to make the addition of the gross profit embedded in the bogus purchases. Accordingly, the ground no. 1 of the appeal is partl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of raw material to various builders and used to receive cash and therefore, the purchases made by the Assessee to some extent was found to be bogus. During the course of assessment proceedings, it was found that assessee has made purchases of ₹ 2.44 crores from 3 different parties. The AO after considering the reply of the assessee from the seized documents found that the payments have been made by the assessee in cheque and cash is received back. Therefore, the AO held that assessee has claimed bogus purchases amounting to ₹ 2.44 crores. The same addition was also made to the total income of the assessee and it was assessed with ₹ 3,23,76,480/- by the order u/s. 153A read with section 143(3) of the Act on 30.3.2015. The assessee is aggrieved with the above order and preferred the appeal before the Ld. CIT(A), who deleted the addition of ₹ 60 lacs, however, sustained the addition of ₹ 2.44 crores. Therefore, the assessee is in appeal on that ground. 3.1 The above issue has been dealt by the Ld. CIT(A) as per ground no. 3 of the appeal at paragraph no. 4.3 which read as under:- 4.3 Ground NO. 3 4.3.1 This issue pertains to the disallowan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in which it has added the bogus purchases to its profits. 4.3.3 However, it is noticed that even as the appellant has added back the bogus purchase, it has simultaneously made a reduction of the total income by the same amount of ₹ 2,44,00,000/- on the grounds that, due to purchases being written off, closing stock also stands reduced by the same amount. Thus, as per the appellant, the net impact on the total income, even after discovery of bogus purchases, is Nil. Therefore the issue that needs be examined is not whether purchases are bogus, but whether the appellant can be allowed to reduce the total income on the grounds that closing stock also been has to be reduced. At the first blush, the arguments of the appellant sounds attractive, but on deeper examination of the actual facts and circumstances of the case, I am of the view that the claim has to be rejected. The closing stock can be reduced by the amount equal to the bogus purchases only if the appellant can establish that the closing stock valuation is as per a stock register in which the items purchased (whether bogus or otherwise) are entered. Obviously then, writing off purchases of certain items will also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other possibility under which a closing stock valuation could have been made, is an actual physical inventory taken of closing stock available (often provided to the bank against loan). Such a stock statement has no link to quantitative details of purchases, and therefore the appellant cannot justifiably link quantitative details of purchase with the closing stock. Hence this plea has to necessarily fail. 4.3.5 It is also pertinent to note that the closing stock as per the audited books for A.Y. 2012-13 (as can be seen from the audited final accounts signed by the auditor on 03.09.2012) is ₹ 4,74,01,230/-. The corresponding profit for the profit and loss account as per the same audited accounts is ₹ 14,43,230/-. In its revised return of income for A.Y. 2012-13 filed under return of income dated 29.09.2012, the appellant has reduced the so-called over-valued closing stock from the profit in the computation of total income, thus effectively reducing its closing stock to ₹ 2,30,01,230/- (₹ 4,74,01,230 minus ₹ 2,44,00,000). However, it is seen from the audited balance sheet of the subsequent assessment year 2013-14, in which the same auditor has pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have carefully considered the rival contentions and perused the orders of the lower authorities. Admittedly, the assessee has debited the bogus purchases of ₹ 2.44 crores in its profit and loss account. The assessee is engaged in the business of construction of residential houses, commercial buildings, flats, factory sheds etc. During the course of assessment proceedings, assessee has offered the addition to the extent of ₹ 2.44 crores as the bogus purchases. It was stated that the above expenses has not been claimed in the profit and loss account, but the whole amount of purchases has been added to the value of the closing stock at the end of the year. It was the claim of the assessee that when assessee has already disallowed the bogus purchases, it should also get benefit by reducing the amount in the closing stock, because of the reason that inventory is to be valued, if found in existence as the bogus purchases inventory. It is not in existence, the consequent closing stock shown also to be reduced by the above amount. This claim of the assessee has been correctly rejected by the Ld. CIT(A) by stating that the opening stock in the subsequent year i.e. AY 2013-14, as ..... 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