2021 (3) TMI 162 - AT - Income Tax

Estimation of income - Bogus purchases - addition to 12.5% of the alleged non genuine purchases - HELD THAT - AO has received information from the sales-tax department that disputed purchases are non genuine and further, the assessee was unable to prove the genuineness of purchases to the satisfaction of the AO, however, it is a fact on record that the Assessing Officer has not disputed either the consumption of goods or sales effected by the assessee. Thus, it has to be accepted that the disputed purchases have entered assessee's stock and utilized in the manufacturing process and ultimately resulting in sales. Therefore, in such circumstances, only the profit element embedded in such purchases can be considered for addition. That being the case, fully agree with the decision of Commissioner (Appeals) in restricting the disallowance to 12.5% of the alleged non-genuine purchases.

Summary

Issues:
Appeal by revenue against order of Commissioner of Income Tax (Appeals) for assessment year 2010-11 regarding partial relief granted on non genuine purchases.

Analysis:
The appeal before the Appellate Tribunal ITAT Mumbai involved a dispute concerning the partial relief granted by the Commissioner (Appeals) regarding the addition made by the Assessing Officer on account of non genuine purchases. The assessee, a resident company engaged in manufacturing and sale of Kraft Line bags and liners, filed its income tax return for the assessment year 2010-11. The Assessing Officer, based on information from the sales-tax department, found purchases worth ?1,65,094 from a particular party to be non genuine due to accommodation entries. Consequently, the assessment was reopened under section 147 of the Income-tax Act, 1961. The Assessing Officer, despite the assessee providing documentary evidence, was not convinced of the genuineness of the purchases and added the amount to the assessee's income. The Commissioner (Appeals) later restricted the addition to 12.5% of the alleged non genuine purchases, disallowing ?20,637.

Upon hearing the appeal, with no representation from the assessee, the Tribunal proceeded ex parte. The Tribunal considered that while the purchases may have been disputed as non genuine, the fact that the goods were consumed in the manufacturing process and resulted in sales was not disputed by the Assessing Officer. Therefore, only the profit element embedded in the purchases could be considered for addition. The Tribunal concurred with the decision of the Commissioner (Appeals) to restrict the disallowance to 12.5% of the alleged non genuine purchases. Consequently, the appeal by the revenue was dismissed, affirming the decision of the Commissioner (Appeals).

In conclusion, the Tribunal upheld the decision of the Commissioner (Appeals) regarding the partial relief granted on non genuine purchases, emphasizing that only the profit element of such purchases could be considered for addition. The Tribunal's analysis focused on the utilization of the disputed purchases in the manufacturing process and subsequent sales, leading to the dismissal of the revenue's appeal.