2021 (4) TMI 235 - AT - Income Tax

Estimation of income - Bogus purchases - HELD THAT - AO has acknowledged the fact that the assessee has effected the corresponding sales and has also offered to tax the profit on such sales. In such circumstances, only the profit element embedded in the alleged non genuine purchase can be considered for addition. It is further noted by me, in assessee s own case in assessment year 2011-12 on identical facts and circumstances the Assessing Officer had made disallowance at 12.5% of the non-genuine purchases which was sustained by learned Commissioner (Appeals). In further appeal the Tribunal 2019 (9) TMI 1509 - ITAT MUMBAI taking note of the fact that the assessee is dealing in low profit margin items which attract lower rate of tax has restricted the disallowance to 5% of the alleged non genuine purchases. Admittedly, the aforesaid decision of the Tribunal was not available before Commissioner (Appeals) when she decided the appeal for the impugned assessment year. Be that as it may, after perusing the order of the Tribunal in assessee s own case in AY 2011-12 (supra) find that the said decision has been rendered on identical facts and circumstances as involved in the present appeal. Therefore, respectfully following the decision of the coordinate Bench in assessee s own case as referred to above, direct the Assessing Officer to restrict the disallowance to 5% of the alleged non genuine purchases. - Decided in favour of assessee.

Summary

Issues:
Addition/disallowance made on account of non-genuine purchases.

Analysis:
The appeal was filed by the assessee against the order of the Commissioner of Income Tax (Appeals) for the assessment year 2010-11, specifically concerning the addition/disallowance made on account of non-genuine purchases. The assessee, engaged in trading ferrous and non-ferrous metals, initially declared a total income of ?2,49,903 for the year. The Assessing Officer reopened the assessment under section 147 of the Act based on information received indicating non-genuine purchases amounting to ?1,05,57,140 from certain parties identified as hawala operators. Despite the assessee providing documentary evidence, the Assessing Officer was not convinced of the genuineness of the purchases. The Commissioner (Appeals) proceeded to enhance the income by disallowing the entire amount of non-genuine purchases, leading to the appeal.

The counsel for the assessee argued that in a previous assessment year, the Tribunal had restricted the disallowance to 5% of non-genuine purchases in the assessee's case. The Departmental Representative supported the Commissioner (Appeals)'s decision. The Tribunal noted that the assessee had conducted corresponding sales and offered tax on the profit, suggesting that only the profit element from the non-genuine purchases should be considered for addition. Referring to a previous decision in the assessee's case for a different assessment year, where the disallowance was restricted to 5% of non-genuine purchases due to low-profit margin items, the Tribunal directed the Assessing Officer to limit the disallowance to 5% of the alleged non-genuine purchases in the present appeal. The Tribunal partially allowed the grounds of the appeal, ruling in favor of the assessee.

In conclusion, the Tribunal's decision in this case highlights the importance of considering the profit element in non-genuine purchases and applying consistent principles based on previous judgments in similar situations. The Tribunal's direction to restrict the disallowance to 5% of the non-genuine purchases aligns with the assessment of low-profit margin items and ensures a fair and reasonable outcome for the assessee.