2022 (3) TMI 1405 - AT - Income Tax

Estimation of income - bogus purchases - HELD THAT - As decided in ROLLON HARDWARE INDIA PVT. LTD. case 2018 (11) TMI 1909 - ITAT MUMBAI facts of the case indicate that assessee has made purchase from the grey market. Making purchases through the grey market gives the assessee savings on account of non-payment of tax and others at the expenses of the exchequer. In such situation in my considered opinion on the facts and circumstances of the case the 12.5% disallowance out of the bogus purchases meets the end of justice. However, in this regard Ld. counsel of the assessee has prayed that when only the profits earned by the assessee on these bogus purchase transaction is to be taxed the gross profit already shown by the assessee and offered to tax should be reduced from the standard 12.5% being directed to be disallowed on account of bogus purchase. - Decided partly in favour of assessee.

Summary

Issues:
Challenge to order dated 31st August 2018 under Income Tax Act, 1961 for assessment year 2014-15. Assessing Officer's grievances regarding deletion of restriction on addition of Rs.26,11,780 on account of bogus purchase and failure to substantiate purchase claim. Appreciation of decision of Hon'ble Supreme Court in a specific case. Assessment of evidence for purchase and implications of grey market purchases.

Analysis:
The Appellate Tribunal ITAT Mumbai addressed the challenge by the Assessing Officer against the order dated 31st August 2018 concerning the assessment for the year 2014-15 under the Income Tax Act, 1961. The primary grievances raised by the Assessing Officer revolved around the deletion of restrictions on the addition of Rs.26,11,780 attributed to bogus purchases due to the appellant's failure to substantiate the purchase claim. Furthermore, the Assessing Officer contested the assessment in light of a specific decision of the Hon'ble Supreme Court related to the treatment of income from bogus purchases.

In its analysis, the Tribunal referred to a similar case involving Rollon Hardware India Pvt. Ltd., where it was observed that the High Court confirmed the deletion of disallowance on account of alleged bogus purchases as necessary documentary evidence for the purchases was available. The Tribunal also considered a decision of the Hon'ble Gujarat High Court in the case of Pr. CIT Vs. T.R. Kapadia, which supported the appellant's position based on documentary evidence.

The Tribunal emphasized the importance of documentary evidence in establishing the genuineness of purchases and highlighted that while adverse inferences were drawn due to the inability to produce suppliers, the absence of doubts regarding sales mitigated the need for a complete disallowance for bogus purchases. The Tribunal cited precedents, including the jurisdictional High Court decision in the case of Nikunj eximp enterprises, to support the rationale that when sales are not in question, a full disallowance for alleged bogus purchases may not be warranted.

Moreover, the Tribunal scrutinized the appellant's purchase from the grey market, noting the potential tax implications and savings associated with such transactions. Ultimately, the Tribunal upheld a 12.5% disallowance on the bogus purchases as a fair resolution in the interest of justice. The Tribunal also considered the appellant's request to adjust the taxed profits based on the directed disallowance percentage but ultimately affirmed the decision of the CIT(A) based on the precedents and legal principles discussed.

In conclusion, the Tribunal dismissed the appeal and pronounced the decision on 25th March 2022, aligning with the findings of the coordinate bench and declining to interfere with the actions of the CIT(A) based on the detailed analysis and legal precedents presented during the proceedings.