2011 (5) TMI 961 - AT - Income Tax

Addition on Account of Bogus Purchases and Unexplained Payments - AO disallowed the purchase made to some parties as bogus purchases and also made the addition for payment made to those parties as unexplained payment - CIT(A) disallowed 30% of the total addition HELD THAT - First we shall consider the addition made by the AO as unexplained payment we find that the AO in this case has made a thorough investigation. Perusal of which clearly shows that the entire payment made by the assessee was by cheque and was debited in the assessee s bank account therefore the same cannot be said to be unexplained payment. Therefore in our opinion there was no justification for making the addition as unexplained payment. As far as the bogus purchase is concerned we find that the AO recorded the detailed finding so as to establish that the purchases claimed to have been made was bogus. On these facts the decision in the case of ASSISTANT COMMISSIONER OF INCOME TAX CIR. 5 BARODA. VERSUS M/S. KULUBI STEEL 2010 (12) TMI 1201 - ITAT AHMEDABAD would be squarely applicable wherein it was held that Any person obtaining bogus bills of some other parties would do so for getting some benefit. But what would be the magnitude of the benefit would depend upon facts of each case. After considering the facts we are of the opinion that it would meet ends of justice if the disallowance is sustained at 12.5% of the purchase from these two parties. Since the facts of the assessee s case are identical we respectfully following the above decision of the ITAT direct the AO to disallow 12.5% of the purchases made during the year under consideration.

Summary

Issues:
- Addition of bogus purchase
- Disallowance of unexplained payment

Analysis:
1. Bogus Purchase: The case involved disputes over the authenticity of purchases made by the assessee from two parties. The Assessing Officer disallowed the purchases as bogus and added the amount to the total income. On appeal, the CIT(A) upheld the disallowance but reduced it by 30% based on previous ITAT decisions. The assessee argued that although unable to prove the genuineness of purchases, quantitative details were maintained and reflected in accounts. Citing precedents, the assessee requested a reasonable disallowance percentage. The ITAT, considering the facts and arguments, sustained the disallowance at 12.5% of the purchases from the two parties, in line with previous decisions, directing the Assessing Officer to adjust the disallowance accordingly.

2. Unexplained Payment: The Assessing Officer made an addition for unexplained payments related to the purchases. However, thorough investigation revealed that all payments were made by cheque, duly recorded in the books. The ITAT concluded that since payments were accounted for and made through legitimate means, there was no basis for considering them unexplained. Consequently, the addition for unexplained payment was deemed unjustified.

In conclusion, the ITAT partially allowed the assessee's appeal regarding the bogus purchase, sustaining a 12.5% disallowance. On the other hand, the Revenue's appeal was dismissed. The judgment highlighted the importance of maintaining proper records and adhering to legal precedents in determining disallowances related to questionable transactions.