The Bombay High Court delivered its judgment on appeals filed by the Revenue and SVD Resins & Plastics Pvt. Ltd. concerning the genuineness of certain purchase transactions. The court upheld the decision of the Income Tax Appellate Tribunal (ITAT), which had partly allowed the Revenue's appeal by directing the Assessing Officer (AO) to estimate income based on a 12.5% profit margin on the disputed purchases, rejecting the assessee's lower profit margin. The court emphasized that without substantial evidence from the Sales Tax Department proving the transactions were bogus, the AO could not arbitrarily discard the purchases. It highlighted the need for thorough investigation and coordination between the AO and Sales Tax authorities before making such determinations.

Introduction

The judgment involves two income tax appeals filed by the Principal Commissioner of Income Tax against SVD Resins & Plastics Pvt. Ltd. The appeals were against the decision of the ITAT, which had ruled on the treatment of certain purchase transactions that were alleged to be bogus.

Background

The case revolves around the assessment years 2009-2010 and 2010-2011. The AO reopened the assessment under Section 147 of the Income Tax Act, based on information that the assessee had made purchases from parties identified by the Sales Tax Department as non-genuine dealers. The AO added the total purchase amount to the assessee's income under Section 69C of the Act.

Proceedings Before CIT(A)

The assessee contested the AO's decision, arguing that the purchases were genuine, supported by relevant documents, and the AO had not invoked Section 145(3) to reject the books of accounts. The Commissioner of Income Tax (Appeals) [CIT(A)] partially accepted the assessee's contention by estimating a 12.5% profit on the disputed purchases instead of disallowing the entire amount.

ITAT's Decision

The Revenue and the assessee appealed to the ITAT. The ITAT upheld the CIT(A)'s decision but directed the AO to apply the 12.5% profit margin without reducing it by the gross profit already declared by the assessee.

High Court's Judgment

The Bombay High Court dismissed the Revenue's appeals, stating that the AO's approach lacked concrete evidence and was based on general information rather than specific findings. The court held that the entire addition could only be justified if there was unequivocal proof of bogus transactions, which was absent in this case.

Conclusion

The court's ruling underscores the necessity for tax authorities to provide substantial evidence before making additions to an assessee's income based on allegations of bogus purchases. The judgment also highlights the importance of proper coordination between tax and sales authorities in investigating such claims.