2019 (11) TMI 323 - AT - Income Tax

Addition on account of non genuine purchases - addition @ 12.5% of the non genuine purchases - HELD THAT - The facts on record reveal that before the Departmental Authorities, the assessee has not been able to conclusively prove genuineness of purchases. Even, attempt made by the AO to independently verify the purchases bore no result. In such circumstances, assessee s claim of purchases made being genuine cannot be accepted. The fact that the assessee had furnished quantitative details relating to purchase, consumption and sale of goods cannot be completely overlooked. Thus, a reasonable presumption can be drawn that the assessee may not have purchased the goods from the declared source but has purchased them from third parties and for regularizing such purchases has obtained accommodation bills. In such circumstances, the entire purchases made by the assessee cannot be disallowed and added back to the income of the assessee. It would be reasonable to estimate the profit element embedded in such purchases and consider it for addition. Addition @ 12.5% of the non genuine purchases would be reasonable. Accordingly, direct the Assessing Officer to restrict the addition to 12.5% of ₹ 11,66,082. Assessee s appeal is partly allowed.

Summary

Issues:
1. Dismissal of certain grounds in the appeal.
2. Addition of non-genuine purchases to the assessee's income.

Analysis:
1. The appeal included various grounds, with ground no.1.2 being dismissed as it was not pressed, and ground no.1.7 being considered general and not requiring adjudication.
2. The main issue revolved around the addition of ?11,66,082 to the assessee's income due to non-genuine purchases. The Assessing Officer re-opened the assessment under section 147 of the Income-tax Act based on information suggesting the purchases were not genuine. Despite the assessee providing some documentation, the Assessing Officer found the evidence insufficient to prove the purchases' genuineness, leading to the addition in income.
3. The Authorized Representative argued that since the consumption of raw materials and sale of finished products were not disputed, disallowing the entire purchases was improper. Instead, they suggested considering the profit element embedded in the purchases for addition.
4. The Tribunal noted that while the genuineness of purchases was not conclusively proven, the quantitative details provided by the assessee indicated a presumption that the goods might have been purchased from third parties with accommodation bills. Therefore, the Tribunal directed the Assessing Officer to restrict the addition to 12.5% of the non-genuine purchases, amounting to ?1,45,760.
5. Ultimately, the Tribunal partly allowed the assessee's appeal, emphasizing the need to consider the profit element in the non-genuine purchases rather than disallowing the entire amount.