2018 (12) TMI 1643 - AT - Income Tax

Unexplained purchases - AO received information from DGIT (Investigation), who in turn received information from Sales Tax Department, Mumbai that the assessee has made purchases from hawala parties - HELD THAT - CIT(A) has confirmed entire addition of bogus purchases made by AO, which according to us is on higher side going by the nature of business of the assessee i.e. trading of all types of castings. We are in full agreement with the contentions raised by the assessee before CIT(A) and according to us a profit rate of 12.5% is quite reasonable as assessee has also paid the VAT element on these bogus purchases. Hence, we direct the AO to recompute the income after applying profit rate at the rate of 12.5% and compute the income accordingly. - Appeal of the assessee is partly allowed.

Summary

Issues involved: Disallowance of non-genuine and bogus purchases.

Detailed Analysis:

Issue 1: Disallowance of non-genuine and bogus purchases
The appeal arose from the order of the Commissioner of Income Tax (Appeals) confirming the disallowance made by the Assessing Officer (AO) as non-genuine and bogus purchases. The assessee, engaged in trading of castings, was found to have made purchases from hawala parties based on information from the Sales Tax Department. The AO issued notices to the parties but failed to establish their genuineness. The CIT(A) upheld the addition of unproved purchases. The ITAT Mumbai found the addition to be on the higher side and directed the AO to recompute the income by applying a profit rate of 12.5%, considering the nature of the business and VAT payments made by the assessee. The appeal was partly allowed, and the income was to be recomputed accordingly.

This judgment highlights the importance of establishing the genuineness of purchases, especially in cases involving hawala transactions. It also emphasizes the need for maintaining proper documentation and evidence to support transactions and business activities. The ITAT's decision to recompute the income based on a reasonable profit rate underscores the significance of considering the specific circumstances of the business while making such determinations.