2020 (11) TMI 256 - AT - Income Tax

Estimation of income - bogus purchases - CIT(Appeals) restricting the disallowance to 5% - HELD THAT - As seen from the details filed by the assessee's AR during the proceedings that the assessee has declared substantial Gross profit year after year and the GP declared for the year is 14.40% percent - fastening with high gross profit on the alleged bogus purchases would increase the the Gross profit of the assessee to abnormal percentage, which is not possible in trading, particularly in small engineering items in which the assessee is engaged in a competitive market. Therefore keeping in view the totality of facts and circumstances of the case, the disallowance made by the AO is restricted to 5% of such disputed purchases correctly - Decided against revenue.

Summary

Issues:
Appeal against disallowance of purchases as non-genuine/bogus by Assessing Officer.

Analysis:
The appeals were filed by the revenue challenging the orders of the Commissioner of Income Tax (Appeals) that restricted the disallowance of purchases to 5% of the total amount for the assessment years 2010-11 and 2011-12. The Assessing Officer reopened the assessments based on information regarding accommodation entries provided by various dealers, including the assessee. The assessee failed to produce suppliers or transportation details, leading the Assessing Officer to treat the purchases as non-genuine. The Commissioner of Income Tax (Appeals) considered the evidence and submissions, limiting the disallowance to 5% of the non-genuine purchases.

The Judicial Member reviewed the case and found no issue with the Commissioner's decision. The Commissioner had considered the submissions and evidence provided by the assessee, noting that the Assessing Officer's peak credit calculation was flawed. The Judicial Member cited various legal precedents to support the conclusion that purchases supported by sufficient documentary evidence should not be deemed non-genuine solely due to non-appearance of suppliers. The Judicial Member upheld the Commissioner's decision to restrict the disallowance to 5% of the purchases, considering the substantial gross profit declared by the assessee in previous years. The appeals of the Revenue were dismissed, affirming the Commissioner's order.

In conclusion, the judgment addressed the issue of disallowance of purchases as non-genuine, highlighting the importance of documentary evidence and legal precedents in determining the genuineness of transactions. The decision to restrict the disallowance to 5% of the purchases was upheld based on the evidence presented and the reasoning provided by the Commissioner of Income Tax (Appeals).