2021 (1) TMI 875 - AT - Income Tax

Estimation of Income - bogus purchases - CIT(A) sustaining the disallowance made @12.5% - HELD THAT - Since the revenue had not doubted the corresponding consumption / sales made out of such disputed purchases in the peculiar facts of the instant case, it would be just and reasonable to estimate only the profit element embedded in such disputed purchases and bring to tax the same. In the case of Simit P Sheth 2013 (10) TMI 1028 - GUJARAT HIGH COURT had estimated the profit percentage to be at 12.5%. We also find that in series of decisions rendered by this Tribunal the very same profit percentage of 12.5% has been considered for the similar line of industry in which assessee is engaged in. Hence, we hold that the ld. CIT(A) had rightly estimated the profit percentage at 12.5% on value of alleged disputed purchases - Decided against assessee.

Summary

Issues Involved:
Whether the Commissioner of Income Tax (Appeals) was justified in sustaining the disallowance made on alleged bogus purchases.

Analysis:
The appeal in ITA No.2519/Mum/2019 for A.Y.2013-14 was against the order by the ld. Commissioner of Income Tax (Appeals)-18, Mumbai regarding the disallowance made on alleged bogus purchases. The assessee did not appear during the proceedings, leading to the Tribunal proceeding to dispose of the appeal based on the merits presented by the Revenue. The assessee, engaged in trading fabrics, declared total income for the year but faced scrutiny due to purchases from certain suppliers which were deemed bogus.

The ld. AO found that the purchases from four specific parties were questionable and sought to verify their authenticity. Despite the assessee providing various documents and explanations, including delivery challans and financial statements, the suppliers could not be produced before the authorities. The ld. AO estimated a 12.5% profit element on the alleged bogus purchases, resulting in a disallowance.

The ld. CIT(A) upheld the disallowance, noting that the suppliers were found to be bogus, as evidenced by the non-production of parties and their inclusion in the list of tainted hawala dealers. The ld. CIT(A) concluded that the profit percentage estimated by the ld. AO was reasonable, considering the circumstances and upheld the action.

The Tribunal found that the assessee failed to substantiate its claim that the purchases were not subject to MVAT/Sales Tax. Despite the consumption/sales not being doubted, the Tribunal decided to tax only the profit element from the disputed purchases. The non-service of notices to the alleged suppliers indicated their non-existence, shifting the burden on the assessee to prove the legitimacy of the purchases. The Tribunal agreed with the profit percentage estimation of 12.5% by the ld. CIT(A) based on industry standards and previous judgments, ultimately dismissing the appeal.

In conclusion, the Tribunal dismissed the appeal, upholding the decision to sustain the disallowance made on the alleged bogus purchases, based on the profit element estimated at 12.5% in the peculiar circumstances of the case.