2021 (3) TMI 161 - AT - Income Tax

Estimation of income - Bogus purchases - assessee having failed to prove the genuineness of purchases, disallowance made at 12.5% - HELD THAT - Assessee was unable to furnish documentary evidence to the satisfaction of the Assessing Officer to prove the genuineness of purchases made, however, it is also a fact that the sales made by the assessee have not been doubted. This pre-supposes that in absence of the purchases, the assessee could not have effected corresponding sales. Even, the AO was also convinced with this fact. Hence, instead of disallowing the entire purchases, he disallowed only the profit element by estimating at 12.5%. Keeping in view the nature of business carried on by the assessee and the profit rate normally attached to such line of business, disallowance at 5% of the alleged non genuine purchases would be fair and reasonable. Accordingly, direct the Assessing Officer to restrict the disallowance to 5% of the alleged non genuine purchases. This ground is partly allowed.

Summary

Issues: Disallowance on account of non genuine purchases

Analysis:
The appeal pertains to an order by the Commissioner of Income Tax (Appeals) for the assessment year 2010-11. The main issue revolves around the disallowance of purchases claimed to be non genuine by the Assessing Officer. The assessee, a partnership firm dealing in trading of metals, contested the disallowance during the assessment proceedings.

The Assessing Officer reopened the assessment based on information received from the sales-tax department indicating that purchases worth a significant amount were non genuine. Despite the assessee providing some evidence to prove the purchases, it did not satisfy the Assessing Officer, leading to the disallowance of a portion of the alleged non genuine purchases. The disallowance was upheld by the Commissioner (Appeals).

During the appeal, the assessee argued that sufficient documentary evidence was submitted to establish the genuineness of purchases. The counsel contended that the disallowance rate of 12.5% was excessive, citing the normal profit rate in the business sector. Reference was made to a previous Tribunal decision where a similar disallowance was restricted to 5%.

The Departmental Representative supported the Assessing Officer's decision, emphasizing the failure of the assessee to adequately prove the purchases' genuineness.

The Member (J) of the Appellate Tribunal analyzed the submissions and evidence. While acknowledging the lack of conclusive documentary evidence, it was noted that the sales made by the assessee were not in question. Consequently, the disallowance was deemed to represent only the profit element. Considering the industry norms and profit rates, the disallowance rate was reduced to 5% of the alleged non genuine purchases, deeming it fair and reasonable. The direction was given to the Assessing Officer to adjust the disallowance accordingly.

In conclusion, the appeal was partially allowed, with the disallowance rate being reduced to 5% of the alleged non genuine purchases.