9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2021 (4) TMI 324 - AT - Income TaxEstimation of income - bogus purchases - CIT(A) sustaining 25% disallowance - Information was received from the sales tax Department that assessee has made bogus purchases - HELD THAT - Upon careful consideration we find that assessee has provided the documentary evidence for the purchase. Adverse inferences have been drawn due to the inability of the assessee to produce the suppliers and also the statement of the partner of the assessee firm. We find that in this case the sales or any other aspect of assessee's workings have not been doubted. It is settled law that when sales are not doubted, hundred percent disallowance for bogus purchase cannot be done. In the present case the facts of the case indicate that assessee has made purchase from the grey market. This is also the finding of learned CIT(A). Making purchases through the grey market gives the assessee savings on account of non-payment of tax and others at the expenses of the exchequer. In such situation in our considered opinion on the facts and circumstances of the case the 12.5% disallowance out of the bogus purchases meets the end of justice. In this regard we also note that Id counsel of the assessee has submitted that in assessee's own case for A.Y. 2007-08, ITAT in similar facts has restricted the disallowance to 12.5%. A.Y. 2007-08 is also a port of common order of learned CIT(A) and it is not the case of the Revenue the ITAT order has been reversed by Hon'ble High Court. Hence, in the background of the aforesaid discussion and precedent we modify the order of learned CIT(A) and direct that disallowance be restricted to 12.5% of the bogus purchases. Appeals filed by the assessee are partly allowed.
Issues Involved:
1. Disallowance of 25% on account of bogus purchases sustained by CIT(A). 2. Assessment officer's 100% addition on account of bogus purchases. 3. Whether the disallowance should be restricted based on the profit element. 4. Documentary evidence provided by the assessee for the purchases. 5. Applicability of the principle that no sales are possible without actual purchases. 6. Decision on the percentage of disallowance for bogus purchases. Analysis: 1. The appeals by the assessee challenged the CIT(A)'s decision to sustain a 25% disallowance on account of bogus purchases. The assessing officer initially made a 100% addition for the alleged bogus purchases in two assessment years. 2. The CIT(A) based the disallowance on information received from the sales tax department regarding bogus purchases made by the assessee. The CIT(A) referred to a suspicious transaction report and statements from individuals involved in providing accommodation entries. The CIT(A) reduced the disallowance to 25% considering various discrepancies and admissions made during the investigation. 3. The assessee contended that purchases from other parties may have been made, and the disallowance should be restricted to the profit element. The net profit offered by the assessee on the construction project was claimed to be significantly high, leading to unrealistic profits post the assessing officer's disallowance. 4. The ITAT noted that the assessee provided documentary evidence for the purchases, but adverse inferences were drawn due to the inability to produce suppliers and a partner's statement. The ITAT emphasized that when sales are not doubted, a 100% disallowance for bogus purchases cannot be justified. 5. Referring to a jurisdictional High Court decision, the ITAT highlighted that without doubting sales, a complete disallowance for alleged bogus purchases is not warranted. The ITAT acknowledged the possibility of purchases from the grey market, resulting in tax savings for the assessee. The ITAT found a 12.5% disallowance out of the bogus purchases appropriate based on the facts and circumstances. 6. Considering the precedent in the assessee's own case for a previous assessment year, where a 12.5% disallowance was upheld by the ITAT, the ITAT modified the CIT(A)'s order and directed the disallowance to be restricted to 12.5% of the alleged bogus purchases. Consequently, the appeals filed by the assessee were partly allowed.
|
