2021 (2) TMI 1007 - AT - Income Tax

Estimation of income - Bogus purchases - CIT(A) erred in restricting the disallowance of purchases to 12.5% - HELD THAT - CIT(A) considered this aspect of the matter elaborately with reference to the submissions of the assessee and the averments in the Assessment Order and following the decision of Hon'ble Gujarat High Court in the case of CIT v. Simit P. Sheth 2013 (10) TMI 1028 - GUJARAT HIGH COURT restricted the disallowance to 12.5% of the non-genuine purchases. No infirmity in the order passed by the Ld.CIT(A) in restricting the addition/disallowance to the extent of 12.5% of the purchases. Grounds raised by the revenue are dismissed.

Summary

Issues:
Appeal by Revenue against CIT(A) order restricting disallowance of purchases to 12.5%.

Analysis:
The appeal involved the Revenue challenging the CIT(A) order restricting the disallowance of purchases to 12.5% instead of the entire amount as non-genuine. The case revolved around the assessee, engaged in trading plastic bags, not filing income tax return for A.Y. 2009-10. The Assessing Officer treated purchases as non-genuine based on information from Sales Tax Department about accommodation entries. The assessee claimed purchases were genuine, made through account payee cheques. However, parties were not produced before the Assessing Officer. The CIT(A) restricted the disallowance to 12.5% of non-genuine purchases.

During the proceedings, no representation was made by the assessee. The Ld. DR supported the Assessing Officer's orders. The Judicial Member analyzed the CIT(A) order, noting the detailed consideration given to the submissions and the Assessing Officer's findings. The CIT(A) referenced the decision of the Hon'ble Gujarat High Court in a similar case to justify restricting the disallowance to 12.5% of non-genuine purchases. The CIT(A) emphasized the burden of proof on the appellant to establish the genuineness of transactions.

The CIT(A) highlighted that mere payment by account payee cheque does not automatically certify the transaction's genuineness. The CIT(A) referred to legal precedents emphasizing the need to prove creditworthiness and genuineness of transactions beyond banking channels. The High Court's decision in a similar case was cited to support the approach of taxing only the profit element embedded in purchases, not the entire amount. The Judicial Member found no infirmity in the CIT(A) order and dismissed the Revenue's appeal, upholding the restriction of the disallowance to 12.5% of purchases.

In conclusion, the appeal by the Revenue was dismissed, and the CIT(A)'s order restricting the disallowance of purchases to 12.5% was upheld. The decision was based on the burden of proof on the appellant, legal precedents, and the approach of taxing only the profit element embedded in transactions. The judgment provided a detailed analysis of the case, emphasizing the need for substantiating the genuineness of transactions beyond mere payment methods.