2023 (3) TMI 1500 - AT - Income Tax

Estimation of income - Bogus purchases - HELD THAT - Undisputedly the assessee failed to furnish documentary evidence to prove genuineness of unproved purchases made from alleged hawala entry providers. In fact the assessee has neither appeared before the AO nor the CIT(A) to discharge his onus in proving genuineness of the suspicious dealers and purchases. AO and the CIT(A) estimated suppressed G.P on unproved purchases. Admittedly the Assessing Officer has accepted the sales turnover and inventory declared by the assessee. In such circumstances it is only the element of suppressed profits that has to be brought to tax Re. PCIT vs. Paramshakhti Distributors Pvt. Ltd. 2019 (7) TMI 838 - BOMBAY HIGH COURT in trading of ferrous and non-ferrous metals generally the G.P ranges between 5% to 8%. Considering the entire facts of the case we modify the order of CIT(A) and restrict the addition to 7.5% of the unproved purchases. Appeal of the assessee is partly allowed.

Summary

Issues involved: Assessment years 2010-11 and 2011-12 - Alleged bogus purchases leading to addition in income tax assessment.

Assessment Year 2010-11:
The appellant, engaged in trading of metals, faced a reassessment due to alleged bogus purchases from hawala operators. Despite failing to provide evidence, the Assessing Officer estimated a 25% suppression of profits, adding Rs. 63,82,398 to the income. The CIT(A) reduced the addition to 12.5% of the alleged bogus purchases. The appellant argued for a further reduction, suggesting a 2-3% disallowance. The Department contended that the appellant did not prove the genuineness of purchases and had obtained accommodation entries from hawala operators. The tribunal found the appellant's lack of evidence and non-appearance before authorities significant. Considering industry standards, the addition was restricted to 7.5% of unproved purchases, leading to a partial allowance of the appeal.

Assessment Year 2011-12:
Similar to the previous year, the appellant faced disallowance of 12.5% of alleged bogus purchases. The Department highlighted the appellant's failure to prove the purchases' genuineness. The tribunal noted the similarities with the previous assessment year and applied the same reasoning, restricting the disallowance to 7.5% for parity. Consequently, the appeal for both assessment years was partially allowed.

In conclusion, the tribunal partially allowed the appeals for assessment years 2010-11 and 2011-12, reducing the additions related to alleged bogus purchases based on the appellant's failure to provide sufficient evidence.