2021 (3) TMI 164 - AT - Income Tax

Estimation of income - bogus purchases - Commissioner (Appeals) restricted the disallowance to 12.5% of the disputed purchases - HELD THAT - AO disallowed entire purchases made from M/s. Sumit Sales on the reasoning that the assessee was unable to furnish any evidence to prove that purchases, however, as observed by Commissioner (Appeals), the Assessing Officer has not disputed that the assessee had effected the corresponding sales. Assessee might have purchased the goods from grey market by suppressing the profit element. In such circumstances, as rightly held by Commissioner (Appeals), only the profit element embedded in such purchases can be considered for addition. Further, in my considered opinion, the disallowance sustained by Commissioner (Appeals) by estimating the profit rate at 12.5% is fair and reasonable; hence, does not require any interference. Ground raised is dismissed.

Summary

Issues:
Dispute over partial relief granted for non-genuine purchases in assessment year 2010-11.

Analysis:
The appeal before the Appellate Tribunal ITAT Mumbai involved a dispute regarding the partial relief granted by the Commissioner of Income-tax (Appeals)-48 for the assessment year 2010-11. The appellant, a partnership firm engaged in trading, had filed its return of income declaring &8377; 8,90,258. The assessing officer reopened the assessment under section 147 of the Act based on information that the appellant benefited from bogus purchase bills. The assessing officer questioned purchases amounting to &8377; 12,37,674 from two parties, treating &8377; 10,14,469 as non-genuine and adding it back to the income. The appellant contested this addition, leading to the Commissioner (Appeals) restricting the disallowance to 12.5% of the disputed purchases, reducing the addition to &8377; 1,26,808.

During the appeal hearing, the appellant was absent, and the appeal was disposed of ex parte. The Tribunal considered the assessing officer's disallowance of purchases from one party, noting that while the appellant could not prove the purchases, there was no dispute regarding the corresponding sales. This implied that the appellant may have purchased goods from the grey market, suppressing the profit element. The Tribunal agreed with the Commissioner (Appeals) that only the profit element should be considered for addition. The Tribunal found the 12.5% profit rate estimation by the Commissioner (Appeals) fair and reasonable, leading to the dismissal of the appeal.

In conclusion, the Appellate Tribunal upheld the decision of the Commissioner (Appeals) to restrict the disallowance to 12.5% of the disputed purchases, considering only the profit element for addition. The Tribunal found no grounds for interference and dismissed the appeal, pronouncing the order on 25/02/2021.