Addition to be only for profit on sales corresponding to bogus purchase bills

Addition could be made only for part of additional profit on sales corresponding to bogus purchase bills

In a recent judgment, the Bombay ITAT has held that addition could be made only for part of additional profit on sales corresponding to bogus purchase bills

ABCAUS Case Law Citation:
ABCAUS 4023 (2024) (05) ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) in deleting the disallowance of alleged bogus purchases from non-existent vendors.

The respondent assessee firm was in the business of executing electrical contracts. Subsequently, in view of the information from the Sales Tax Department that assessee had obtained bogus bills from hawala operators, the Assessing Officer reopened the assessment by way of issue of notice u/s 148of the Act.

In the reasons recorded, the Assessing Officer noted that assessee had taken bogus bills from ‘hawala’ dealers. In response to the notice u/s 148 of the Act, no return of income was filed by the assessee. The Assessing Officer completed the reassessment after disallowing the entire purchases vide his order passed u/s 143(3) r.w.s. 147 of the Act.

On appeal by the assessee, the CIT(A) deleted the addition.

The CIT(A) noted that in respect of bogus purchases for the relevant assessment year and two succeeding assessment years, the assessee had already accepted additional profit during the course of survey action carried out subsequent to the relevant assessment year.

The CIT(A) observed that when sales have not been doubted then only possibility was that the assessee might have obtained goods in cash from the grey market and obtained a benefit of cash discount, for which, the additional profit @ 12% declared by the assessee was justified.

The Tribunal observed that as rightly held by the CIT(A) the addition could be made only for part of additional profit on such sales corresponding to bogus purchase bills.

The Tribunal further noted that the assessee has declared such additional profit at the rate of 12% in second assessment year preceding the relevant AY.  Therefore, the only issue was in which assessment year the assessee should have declared said additional profit on bogus purchase bills. 

The Tribunal opined that Normally, such additional profit should have been declared in corresponding assessment year but the Revenue has accepted such tax in subsequent AY. Therefore, question arises whether tax on same income in year under consideration is justified, when tax on same has already been n in another assessment year? The answer is negative unless the Revenue refund corresponding tax collected in another assessment year, otherwise. it amounts to taxing the same income twice, which is not permitted in law.

Accordingly, the Tribunal upheld the order of CIT(A) and dismissed the ground of appeal of Revenue.

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