2018 (12) TMI 1948 - AT - Income Tax

Estimation of income - Bogus purchases - assessee has failed to furnish relevant documentary evidences to conclusively prove the genuineness of purchases made from the concerned party - HELD THAT - It is a fact on record that the sales turnover shown by the assessee has not been disputed or doubted by the departmental authorities Addition of the entire non genuine purchases would be improper. In such circumstances what the assessee might have suppressed is the profit element embedded in such purchases, which may also include the local tax payable. Therefore, to take care of any leakage in revenue, only the profit element embedded in such purchases can be considered for addition. Thus, considering the overall facts and circumstances of the present case we are of the view that addition at the rate of 12.5% of the non genuine purchases would be reasonable and serve the interests of justice. Accordingly, we direct the assessing officer to restrict the addition to 12.5% of the non genuine purchases. Ground raised is partly allowed.

Summary

Issues:
Assessment of non-genuine purchases for the assessment year 2010-11.

Analysis:
The appeal was filed by the assessee against the order of the Commissioner of Income Tax (Appeals) for the assessment year 2010-11. The assessee raised eight grounds, but during the hearing, only ground no. 5 was pressed, leading to the dismissal of the other grounds. The facts related to ground no. 5 revolved around the assessee, an individual engaged in manufacturing and sale of machines, spare parts, and components. The assessing officer reopened the assessment under section 147 of the Income Tax Act, 1961 based on information from the Sales Tax Department, Government of Maharashtra, indicating non-genuine purchases worth &8377; 5,74,021 from a dealer identified as a hawala operator. The assessing officer requested the assessee to prove the genuineness of the purchases, but the supporting documentary evidence provided was deemed insufficient. Despite the lack of conclusive evidence, the sales turnover of the assessee was not disputed by the authorities.

The Authorized Representative argued that the addition of the entire non-genuine purchases was unjustified since the sales by the assessee were not in doubt. It was proposed that the addition should be limited to 12.5% of the alleged bogus purchases. Conversely, the Departmental Representative supported the Commissioner (Appeals)'s observations. The Tribunal considered the submissions and the evidence on record. While acknowledging the failure of the assessee to provide adequate documentary evidence to establish the genuineness of the purchases, the Tribunal noted that the sales turnover was not questioned. Therefore, it was inferred that the goods might have been purchased from the grey market. The Tribunal concluded that adding the entire non-genuine purchases would be inappropriate and decided that only the profit element embedded in such purchases should be considered for addition. To address any revenue leakage, it was deemed reasonable to restrict the addition to 12.5% of the non-genuine purchases. Consequently, the Tribunal partially allowed the ground raised by the assessee, directing the assessing officer to limit the addition accordingly.

In conclusion, the Tribunal partially allowed the assessee's appeal, emphasizing the importance of considering the profit element in non-genuine purchases and restricting the addition to 12.5% of such purchases to serve the interests of justice.