2021 (11) TMI 1116 - AT - Income Tax

Estimation of income - bogus purchases - HELD THAT - It is not in dispute that assessee had made purchases from tainted dealers whose names appear in the website of sales tax department, Government of Maharashtra. It is not in dispute that the corresponding sales made by the assessee out of such disputed purchases from two parties were not doubted by the ld. AO. It is not in dispute that assessee had submitted the details of purchases, invoice bills alongwith bank statements evidencing the fact that payments have been made to those suppliers only by account payee cheques. Since the corresponding sales made by the assessee out of the disputed purchases has not been doubted by the Revenue, we find that the ld. CIT(A) had rightly held that only the profit element needs to be brought to tax and not the entire value of the purchases. We find that this Tribunal in series of decisions, depending upon the nature of industry in which assessee s are engaged in, had estimated the profit element to be at 12.5%. Appeal of the assessee is allowed.

Summary

Issues: Validity of re-assessment and disallowance on account of bogus purchases.

In this judgment by the Appellate Tribunal ITAT Mumbai, the appeals for A.Y.2007-08 were taken up together concerning the validity of re-assessment and disallowance on account of bogus purchases. The first ground challenging the validity of re-assessment was not pressed by the assessee and was dismissed. The second ground, along with all grounds raised by the Revenue, related to disallowance on account of bogus purchases. The assessee, engaged in trading paper, had made purchases from suppliers flagged as tainted dealers by the sales tax department of the Government of Maharashtra. The ld. AO treated the entire value of purchases as bogus due to the inability of the assessee to prove their genuineness. However, the ld. CIT(A) noted that the corresponding sales were not doubted, indicating a profit element should be taxed instead of the entire value of purchases. The ld. CIT(A) estimated the profit element at 12.5%, a decision upheld by the Tribunal based on previous rulings. As a result, the appeal of the assessee was allowed, and the appeal of the Revenue was dismissed.

The first issue addressed in the judgment was the validity of re-assessment, which the assessee initially challenged but later did not press, leading to its dismissal. The second issue revolved around the disallowance on account of bogus purchases made by the assessee. The ld. AO treated the entire value of purchases as bogus due to the suppliers being flagged as tainted dealers. However, the ld. CIT(A) noted that since the corresponding sales were not doubted, only the profit element needed to be taxed. The Tribunal upheld the ld. CIT(A)'s decision to tax the profit element at 12.5%, citing past rulings. The judgment highlighted the importance of establishing the genuineness of purchases and the need to differentiate between the value of purchases and the profit element for taxation purposes. Ultimately, the Tribunal allowed the appeal of the assessee and dismissed the appeal of the Revenue, emphasizing the significance of proper documentation and evidence in such cases to determine the taxable amount accurately.