2020 (11) TMI 404 - AT - Income Tax

Estimation of income - Bogus purchases - HELD THAT - Simply because the parties were not produced the entire purchases cannot be added as held by the Bombay High Court in the case of CIT v. Nikunj Eximp 2013 (1) TMI 88 - BOMBAY HIGH COURT - We agree with the view of the lower authorities that there should be an estimation of profit element from these purchases and should be estimated reasonably as the assessee could not conclusively prove that the purchases made are from the parties as claimed, especially in the absence of any confirmations from them. T Keeping in view the nature of business of the assessee i.e. trader in iron and steel, it would be justified if the profit element embedded in those purchases are estimated at 4%. Accordingly, we direct the Assessing Officer to estimate the profit element from the non-genuine purchases at 4% and restrict the disallowance of purchases to 4% and compute the income accordingly.

Summary

Issues involved:
1. Validity of notice issued under section 148 of the Income Tax Act.
2. Addition of a sum in the assessment based on non-genuine purchases.

Detailed Analysis:
1. The appeal was filed against the order of the Learned Commissioner of Income Tax (Appeals) for the Assessment Year 2009-10. The primary issue raised by the assessee was regarding the validity of the notice issued under section 148 of the Income Tax Act. The assessee contended that the notice was bad in law and sought to quash the assessment order. The Assessing Officer had reopened the assessment based on information suggesting the assessee availed accommodation entries without actual material purchases. The Assessing Officer treated purchases of a specific amount as non-genuine and estimated the profit element at 12.5%, resulting in a disallowance. The Commissioner of Income-tax (Appeals) upheld this action, leading to the appeal before the ITAT Mumbai.

2. The second issue revolved around the addition made in the assessment concerning non-genuine purchases. The assessee argued that the Commissioner of Income-tax (Appeals) erred in confirming the Assessing Officer's action of adding a specific amount to the income. The assessee maintained that the purchases were genuine and should not have been treated as non-genuine. The ITAT Mumbai, after considering the submissions and precedents, held that since the sales were accepted as genuine, not the entire purchases could be deemed non-genuine. The Tribunal referred to relevant court decisions emphasizing the need to estimate the profit element embedded in such purchases rather than disallowing the entire amount. Considering the nature of the business and lack of conclusive proof of the purchases' authenticity, the ITAT directed the Assessing Officer to estimate the profit element at 4% and restrict the disallowance accordingly.

In conclusion, the ITAT Mumbai partially allowed the appeal, emphasizing the importance of estimating the profit element in non-genuine purchases rather than disallowing the entire amount. The judgment also addressed the delay in pronouncement due to the COVID-19 pandemic, following the relevant rules and court decisions regarding time-bound periods during lockdowns.