2021 (3) TMI 632 - AT - Income Tax

Estimation of income - Bogus purchases - HELD THAT - Nature of business of the assessee and the nature of investigation done by the AO and thereafter, held that disallowance be kept at 6.75% (being gross profit rate) of transactions covered by accommodation entries. CIT(A) has taken note of the fact that the AO has not issued notice u/s 133(6) to the said parties to verify the genuineness of purchases. We agree with the above findings of the Ld. CIT(A) and affirm his order. Again considering the facts and circumstances of the case for AY 2010-11, the Ld. CIT(A) has restricted the disallowance to 8.25% (being a rate higher than gross profit rate on account of fact that deficiency is reasonably proved by the Assessing Officer) of transactions covered by accommodation entries. For AY 2011-12, the Ld. CIT(A) has followed the rate applied for AY 2009-10 i.e. 6.75% of value of accommodation entries found to be bogus on the ground that the facts for AY 2011-12 are similar to AY 2009-10.

Summary

Issues:
1. Whether the CIT(A) justified in restricting the addition made by the AO to 6.75% of bogus purchase?
2. Whether the CIT(A) erred in overlooking credible information received from the Sales Tax Department regarding accommodation entries?
3. Whether the appeals filed by the Revenue against the CIT(A) order are justified?

Analysis:

Issue 1:
The case involved appeals by the Revenue against the CIT(A)'s order regarding the addition made by the AO on bogus purchases. The AO estimated profit at 7.28% on disputed purchases, adding ?4,24,029. The CIT(A) restricted the disallowance to 6.75% of transactions covered by accommodation entries. The CIT(A) based this decision on judicial precedents and the nature of the business, ultimately affirming the 6.75% disallowance.

Issue 2:
Regarding the second issue, the Revenue contended that the AO's estimation of 7.28% should be restored. However, the ITAT affirmed the CIT(A)'s decision, considering the nature of the business and the investigation conducted. The ITAT agreed with the CIT(A) that the AO did not issue notices to parties to verify the genuineness of purchases, supporting the 6.75% disallowance.

Issue 3:
The ITAT further analyzed the cases for AY 2010-11 and 2011-12. For AY 2010-11, the CIT(A) restricted the disallowance to 8.25% due to reasonably proved deficiencies by the AO. For AY 2011-12, the CIT(A) applied the 6.75% rate from AY 2009-10 due to similar facts. The ITAT affirmed the CIT(A)'s orders for all years and dismissed the appeals filed by the Revenue.

In conclusion, the ITAT upheld the CIT(A)'s decision to restrict the disallowance to 6.75% of bogus purchases, considering the nature of the business and the investigation conducted. The ITAT also supported the CIT(A)'s decisions for subsequent assessment years, leading to the dismissal of the Revenue's appeals.