Bogus Purchase Addition Restricted to 12.5% Gross Profit: ITAT Upholds CIT(A)’s Order, Citing Judicial Precedent [Read Order]
The Tribunal upheld the restriction of bogus purchase addition to 12.5% gross profit, dismissing the Revenue's appeal and citing judicial precedent from the Bombay High Court.
Bogus - purchase - addition - Taxscan
Bogus - purchase - addition - Taxscan
The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) upheld the Commissioner of Income Tax (Appeals) [CIT(A)] order restricting bogus purchase addition to 12.5% of gross profit and dismissed the Revenue's appeal, relying on the Hon'ble Bombay High Court precedent.
S. Rasiklal and Co. (assessee) was subjected to assessment for Assessment Year (AY) 2009-10, where the Assessing Officer (AO) made an addition by disallowing the entire purchases amounting to Rs. 3,73,60,738 from M/s Impex Gems and M/s Jewel Diam, concerns managed and controlled by hawala dealers associated with Shri Bhanwarilal Jain.
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The AO treated the purchases as bogus and added the full amount to the assessee's total income under Section 143(3) read with Section 147 of the Income Tax Act, 1961
Aggrieved by the AO’s order, the assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) accepted the assessee's plea, considering judicial rulings, and restricted the addition to 12.5% of the total purchases as gross profit.
Aggrieved by the CIT(A)’s order, the Revenue appealed to the ITAT. The Revenue’s counsel argued that the entire purchases should be disallowed as bogus, given the hawala nature of the transactions.
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The two-member bench, comprising Narendra Kumar Billaiya (Accountant Member) and Anikesh Banerjee (Judicial Member), observed that the assessee had not appealed against the 12.5% addition confirmed by the CIT(A).
The bench noted that the CIT(A) had relied on the judgment of the Hon'ble Bombay High Court in the case of PCIT v. S.V. Jiwani which supported restricting additions in bogus purchase cases to a reasonable gross profit percentage.
The tribunal observed that in deference to the binding precedent of the jurisdictional High Court and principles of judicial discipline there was no reason to interfere with the CIT(A)’s order.
The tribunal upheld the CIT(A)’s restriction of the addition to 12.5% gross profit on the bogus purchases. The appeal of the Revenue was dismissed.
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