2015 (6) TMI 1087 - AT - Income Tax

Disallowance of unverifiable purchases - rejection of books of accounts U/s 145(3) - Held that - As decided in the case of Shri Anuj Kumar Varshney Vs. I.T.O. 2015 (4) TMI 533 - ITAT JAIPUR disallowances has been held reasonable on considering the detail discussion on facts and legal position on unverifiable purchases/bogus purchases. Accordingly we also apply 15% disallowances on unverifiable purchases in this case also. The Assessing Officer is directed to recalculate the income as per above direction.

Summary

Issues:
Appeal against order reducing trading addition by disallowing unverifiable purchases and rejecting books of accounts under section 145(3) of the IT Act, 1961.

Detailed Analysis:

1. Reduction of Trading Addition:
The Assessing Officer (AO) made a trading addition of Rs. 13,69,762 by disallowing 25% of unverifiable purchases amounting to Rs. 57,48,691. The AO observed discrepancies in the purchases claimed by the assessee from various parties, which were found to be non-existent entities upon investigation. Relying on precedents and case laws, the AO rejected the books of accounts under section 145(3) of the IT Act, shifting the burden on the assessee to establish the genuineness of the purchases. The AO, following relevant decisions, disallowed 25% of unverifiable purchases and added Rs. 14,37,171 to the assessee's income.

2. Appeal to CIT(A):
The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who partially allowed the appeal. The CIT(A) upheld the rejection of books of accounts under section 145(3) due to unverifiable purchases. Referring to past cases, the CIT(A) estimated the gross profit rate at 6.50% for the assessment year, reducing the trading addition to Rs. 67,409 after considering the declared gross profit. The CIT(A) emphasized the importance of past history in estimating income and justified the reduction based on the turnover increase.

3. Appeal to ITAT Jaipur:
The revenue appealed the CIT(A)'s decision before the Income Tax Appellate Tribunal (ITAT) Jaipur. The Departmental Representative (DR) supported the AO's findings, arguing for the confirmation of the addition due to unverifiable purchases. Despite the absence of the assessee, the ITAT considered the submissions made before the CIT(A) and reviewed the case. Citing previous judgments, the ITAT applied a 15% disallowance on unverifiable purchases, directing the AO to recalculate the income accordingly.

4. Final Decision:
The ITAT Jaipur partly allowed the revenue's appeal, reducing the disallowance percentage from 25% to 15% on unverifiable purchases. The ITAT's decision was based on a consistent approach taken in similar cases, emphasizing the reasonableness of the disallowance percentage. The order was pronounced on 05/06/2015, providing clarity on the treatment of unverifiable purchases and the calculation of trading additions in such cases.