Income Tax Appellate Tribunal: In an appeal filed against the order passed by the National Faceless Appeal Centre (NFAC), wherein the Commissioner of Income Tax (‘CIT’) confirmed the addition of Rs. 46,34,928/- to the total income of the assessee being 12.5% of Rs. 3,70,79,423/- i.e. unproved purchase , the two-member bench of Kuldip Singh* (Judicial Member) and Gagan Goyal (Accountant Member) directed the Assessing Officer (‘AO’) to charge the assessee at the gross profit rate at 6.5% on bogus purchases of Rs. 3,70,79,423/-.
In the case at hand, the assessee is an individual running a business of trading in ferrous and non-ferrous metals. During the year, under assessment on the basis of information received from Sales Tax Department and Directorate General of Income Tax (‘DGIT’) that “some businessmen have indulged in acceptance of bogus purchase bills from bogus hawala bill providers and the assessee is one such beneficiaries of bogus purchase bills”, assessment was reopened by initiating the proceedings under Section 147/148 of the Income Tax Act, 1961 (‘IT Act’).
In response to the notice issued under Section 148 of the Act, the assessee opted to treat the return already filed as response to the notice under Section 148 of the Act. The assessee has accepted entries in respect of bogus purchases from 7 entities. On failure of the assessee to produce entities before the AO for verification and after declining the explanation filed by the assessee the AO proceeded to make the addition of Rs.46,34,928/- to the total income of the assessee being 12.5% of Rs.3,70,79,423/- i.e. unproved purchases and thereby framed the assessment under Section 143(3) read with Section 147 of the Act.
The Tribunal said that the entire addition in this case has been made by the AO as well as CIT on the basis of guess work and estimation on the basis of some alleged information received from Sales Tax Department of Maharashtra and from DGIT that “the assessee has taken bogus purchase bills without having taken any delivery of the goods”, without applying their mind.
Placing reliance on CIT v. JK Surface Coatings Pvt. Ltd. ITA No. 1850 of 2017, and in view of the gross profit earned by the assessee in the earlier years based on which profit element was fixed at 6.5% of the alleged bogus purchases, the Tribunal directed the AO to charge the assessee at the gross profit rate at 6.5% on bogus purchases of Rs.3,70,79,423/-.
[Babulal Hajarimalji Jain v Income Tax Officer, 2023 SCC OnLine ITAT 326, Order dated 28-04-2023]
*Order by: Kuldip Singh (Judicial Member)
Advocates who appeared in this case :
Assessee by: Shashank Mehta;
Revenue by: Chetan M. Kacha.