Revenue cannot approbate and reprobate at the same time-ITAT deleted addition of commission on alleged bogus sale and purchase
In a recent judgment, ITAT Delhi held that the Revenue cannot approbate and reprobate at the same time and deleted addition of commission on alleged bogus sale and purchase.
ABCAUS Case Law Citation:
4368 (2025) (01) abcaus.in ITAT
In the instant case, the assessee, before the ITAT/Tribunal had challenged the order passed by the CIT(A) in confirming addition on account of commission worked out by the Assessing Officer (AO) on bogus sale and purchases.
A Search & seizure and survey operation was undertaken under section 132\133A of the Income Tax Act 1961 ( ‘the Act’) in the case of assessee along with the other cases of other group of cases at various residential and business premises.
In response to notice u/s 153A, the assessee filed its return of income for the year under consideration declaring total income as disclosed in the original return of income. Due to partial compliance on the part of the assessee, the AO complete the assessment on the basis of material evidences gathered during the post assessment proceedings.
The Assessing Officer considered the documents found during the course of search proceedings and on examination of the incriminating evidences found in the form of a pen drive at the premises which contained various excel sheet showing receipts and payment of cash and cheques/RTGS.
The statement of the accountant (key cash handler of the group) was also recorded on oath under section 132 (4) of the Act, in which he has admitted that assessee has arranged entries to inflate books of accounts and no actual business activities were carried out. Further AO observed that during the course of search proceedings, Managing Director of the assessee was recorded, in which he clearly stated that they had arranged these entries to inflate books of accounts.
After considering the above, the Assessing Officer observed that from the records, it was clearly established that the assessee had engaged in ingenuine sales and purchases during the year. The AO observed that analysis of GDP chart submitted by the assessee also clearly established that despite the above transactions, the assessee had shown a consistent GP ratio ranging between 28% to 31%. The purpose of entering into bogus sales and purchases being inflation of books was duly determined at the time of search. The information contained in the pen drive relating to transaction of sales, purchases and commission received and paid clearly established that the data submitted by the assessee and duly verifiable from the GST portal, the ingenuine sale amount was almost equal to the ingenuine purchases.
Therefore, in order to determine the true income the AO ignored such transactions from the consideration and determined the commission from the alleged bogus parties relating to purchases and sales and made the above addition to the total income declared by the assessee in the return of income.
The Tribunal observed that the AO made addition of only the commission income presumed to have been paid and received by the assessee on the bogus sales and purchases without disturbing the financial results declared by the assessee.
The Tribunal opined that the Assessing Officer should have either rejected the books of account and determined the actual profit earned by the assessee. However, the AO chosen to proceed with the result declared by the assessee in their return of income and also proceeded to make the presumed commission income which assessee must have paid and received. It was quite contradicting to the detailed findings made by the Assessing Officer based on the material found during search. The AO rejected the contentions of the assessee to make addition on the commissions may have received or paid by the assessee which in fact assessee had not claimed anywhere in their books of account. The Revenue cannot approbate and reprobate at the same time.
The Tribunal observed that if it proceed to accept the findings of the Assessing Officer, it may have to remove the alleged bogus purchases and sales from the financial records maintained by the assessee. If that be the case, the returned income to the extent of gross profit earned in those transactions will have to be removed. In the normal cases of bogus purchases, normally AO is directed to make addition on Gross Profit not on the basis of Net Profit or returned income. If that be the case, strictly speaking, it had to reduce the gross profit from the financial results or returned income declared by the assessee.
The Tribunal expressed its inability to understand that the AO had retained the returned income as per the ROI and also made the commission income on top of the retuned income. Strictly speaking AO has to determine the actual income earned by the assessee not on the basis of presumption. In the case in hand, AO was needed to rework the actual income earned by the assessee. The AO may have to reduce the bogus purchases and sales to the extent it is booked in the financial statements and must have added the commission income which was the payment presumed to have been made. The net result would have been lesser than the retuned income.
The Tribunal further observed that the concept of what approbate and reprobate is settled in by the Hon’ble Supreme Court wherein it had bene held that the maxim that a person cannot ‘approbate and reprobate’ is only one application of the doctrine of election, and that its operation must be confined to reliefs claimed in respect of the same transaction and to the persons who are parties thereto. A party cannot be permitted to “blow hot and cold”, “fast and loose” or “approbate and reprobate”. Where one knowingly accepts the benefits of a contract or conveyance or an order, is estopped to deny the validity or binding effect on him of such contract or conveyance or order. This rule is applied to do equity, however, it must not be applied in a manner as to violate the principles of right and good conscience.
Considering the above, the Tribunal opined that the AO had already proved that the purchases and sales as bogus based on the material found during the search and had already chosen to treat them as bogus and cannot play hot and cold. He has to determine the actual income earned by the assessee and can charge to tax only the actual returned income. It is allowed to make penalties as per the law and cannot presume or make additional income as the income of the assessee without their being actually earned by the assessee. It was different if the AO had not come to conclusion that the transactions are not genuine. Therefore, the Tribunal opined that the gross taxable income cannot be less than the returned income filed by the assessee u/s 139(1) of the Act. The addition made by the Assessing Officer of commission and the elimination of bogus purchases and sales will reduce the taxable income.
Therefore, the Tribunal deleted the additions made by the Assessing Officer.
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