2021 (2) TMI 779 - AT - Income Tax

Estimation of income - bogus purchases - assessee failed to prove the genuineness of the transaction to the satisfaction of the AO - CIT (A) after hearing the assessee restricted the addition to 12.5% of the total amount of bogus purchases - HELD THAT - AO has not rejected the sales of the assessee. Since there can be no sale without purchases, the Ld CIT(A) has rightly concluded that the assessee had purchases the material from the parties other than the parties mentioned in its books of account. Under these circumstances, the Ld. CIT (A) has rightly restricted the addition to 12.5%, keeping in view the profit element embedded in the transactions in question. In our considered view, the findings of the Ld. CIT (A) are well reasoned and based on the law laid down in SIMIT P SHETH 2013 (10) TMI 1028 - GUJARAT HIGH COURT no reason to interfere with the findings of the Ld. CIT (A) - Decided against revenue.

Summary

Issues:
1. Assessment reopened based on accommodation bills from bogus dealers.
2. Dispute over addition of bogus purchases.
3. Failure of assessee to prove genuineness of transactions.
4. Challenge to CIT(A) order by revenue.
5. Absence of assessee during final hearing.
6. CIT(A) decision to restrict addition to 12.5% of bogus purchases.
7. Comparison with N.K. Proteins Ltd case.
8. Legal basis for restricting addition to 12.5%.
9. Upholding CIT(A) decision by ITAT Mumbai.

Analysis:
1. The assessment for the year 2009-10 was reopened due to accommodation bills from bogus dealers, leading to an addition of ?19,16,034 under section 69C of the Income Tax Act, 1961. The assessee challenged this before the CIT(A), who restricted the addition to 12.5% of the total amount of bogus purchases shown, prompting the revenue to appeal.

2. The revenue contested the CIT(A) order on grounds of not appreciating the nature of the transactions and failing to consider the N.K. Proteins Ltd case. The absence of the assessee during the final hearing led the ITAT Mumbai to decide the appeal based on available records.

3. The CIT(A) reasoned that since the parties providing accommodation entries were found to be non-existent and the assessee failed to provide necessary documentation or prove the genuineness of purchases, the addition was restricted to 12.5% following the precedent set by the Hon'ble Gujarat High Court in a similar case.

4. The ITAT Mumbai upheld the CIT(A) decision, emphasizing that the assessee had likely purchased materials from undisclosed parties in the grey market at lower rates, suppressing profits. Since sales were not rejected, the CIT(A) rightly restricted the addition to 12.5% considering the profit element in the transactions.

5. The ITAT Mumbai dismissed the revenue's appeal, concluding that the CIT(A)'s decision was well-reasoned and aligned with legal principles, specifically the precedent from the Hon'ble Gujarat High Court. The order was pronounced on 6th January, 2021, under the Income Tax Appellate Tribunal Rules, 1963.