Addition U/s 68 Should Be Restricted To Extent Of Gross Profit At Same Rate Of Genuine Purchases If Sales Are Not Disputed: Mumbai ITAT
While deleting the addition made u/s 68 of the Income Tax Act, the Mumbai ITAT held that in the absence of any dispute and discrepancy in the sales, the addition should be restricted to the extent of gross profit at the same rate of the genuine purchases. The Bench of the ITAT comprising of Rahul Chaudhary (Judicial Member) and Prashant Maharishi (Accountant Member) observed...
While deleting the addition made u/s 68 of the Income Tax Act, the Mumbai ITAT held that in the absence of any dispute and discrepancy in the sales, the addition should be restricted to the extent of gross profit at the same rate of the genuine purchases.
The Bench of the ITAT comprising of Rahul Chaudhary (Judicial Member) and Prashant Maharishi (Accountant Member) observed while referring the decision of the Bombay High Court in case of PCIT vs. Mohd. Haji Adam and Co. that “where sales are not disputed, no discrepancy between purchases shown by the assessee and the sales declared; only the addition should be restricted to the extent of bringing the gross profit on purchases at the same rate of other genuine purchases.” (Para 9)
As per the brief facts of the case, the Assessee's return was selected for scrutiny, wherein AO found that the assessee has purchased material of ₹1,15,86,557/- from two parties, which are stated to be hawala party by Maharashtra sales tax department and DGIT, Investigation, that these parties are bogus. The AO issued notice u/s 133(6) to the hawala parties, which could not be served by the Postal Authorities, and returned with the remark 'not known'. The AO was asked to produce the parties along with their books of accounts. The assessee expressed his inability. However, the assessee submitted that all these purchases have gone into sale and the assessee has shown a gross profit on these purchases. Further, the transactions are through banking channels supported by proper bills. The AO held that the bogus purchases are required to be added to the total income of the assessee. The AO categorically recorded that as the purchases have been made by the assessee, which has gone into sale, 12.5% of the cost of disputed purchases should be added. However, as the assessee did not show from whom the goods were purchased in reality, he made a 100% addition of such purchases. Hence, the AO made an addition of non-genuine purchases of ₹1,15,86,557/- at the rate of 100%.
The CIT(A) confirmed the 100% addition made by the AO u/s 68.
The Bench noted that the assessee had submitted the stock register before the Bench and also produced the details such as invoices, payment through banking channels, confirmation of accounts, and other details for the purchase of goods before the lower authorities.
The Bench observed that the assessee had given the quantitative sales corresponding to the quantitative purchase, which is from alleged bogus suppliers.
The Bench found that the resultant gross profit from alleged bogus purchases and sales is 5.096%.
The Bench further observed that the gross profit ratio without alleged bogus purchases and corresponding sales is 5.407%, which will result in an addition of 0.3% of alleged bogus purchases of ₹1,15,86,557/-which would be minuscule.
Therefore, on finding that minuscule amount of addition to be retained, ITAT allowed the assessee's appeal.
Counsel for Appellant/Taxpayer: Vimal Punmiya
Counsel for Respondent/Department: Mahita Nair
Case Title: Murtuza Abdul Gaffar Khan verses National Faceless Appeal Centre
Case Number: ITA No. 2698/Mum/2023