2021 (10) TMI 1437 - AT - Income Tax

Estimation of income/ profit rate - bogus purchases - onus to prove - HELD THAT - The assessee has filed bank statement highlighting payment made to parties through account payee cheques but could not produce the parties for examination. The assessee is able to discharge the primary onus of proving the purchases as genuine but could not produce the parties for examination nor the delivery challans or transportation receipts of the goods. Admittedly the assessee is engaged in the business of reselling of ferrous and non-ferrous metals and for this business the profit rate applied by the AO i.e. 12.5% is not reasonable. Going by the nature of the business of the assessee estimate profit rate of 5% and direct the AO accordingly.

Summary

Issues Involved:
The judgment involves the issue of estimating profit rate on alleged bogus purchases and the subsequent appeal against the action of the Assessing Officer.

Estimation of Profit Rate on Alleged Bogus Purchases:
The Appellate Tribunal ITAT Mumbai heard the appeal by the assessee against the order of the CIT(A) confirming the Assessing Officer's decision to estimate the profit rate at 12.5% of the alleged bogus purchases. The Assessing Officer disallowed profit rate of 12.5% of the bogus purchases and made an addition of Rs. 11,55,887. The CIT(A) upheld this action, citing the onus on the assessee to prove the genuineness of the purchases. Various case laws were referenced to support the decision to disallow a portion of the purchase price accounted through fictitious invoices. The Tribunal noted that the assessee had obtained bogus bills but also produced purchase bills, ledger accounts, and bank statements as evidence of genuine transactions. However, the assessee could not produce the parties for examination or delivery challans. Considering the nature of the business, the Tribunal deemed the 12.5% profit rate applied by the Assessing Officer unreasonable and estimated a profit rate of 5% instead. Consequently, the appeal of the assessee was partly allowed.

Conclusion:
The Tribunal's decision highlights the importance of substantiating the genuineness of transactions, especially in cases involving alleged bogus purchases. It emphasizes the need for proper documentation and evidence to support claims made during assessments.