2021 (6) TMI 318 - AT - Income Tax

Estimation of income - bogus purchases - HELD THAT - We find that the Sales Turnover was not in doubt and the assessee was in possession of primary purchase documents. The payment to the suppliers was through banking channels. There could be no sale without actual purchase of material keeping in view the assessee's nature of business. The facts of the case made it a fit case to estimate the profit element embedded in these transactions - CIT(A), after due consideration of assessee's submissions as well as material on record, estimated the additions @25% which is more than enough to take care of the leakage of revenue. Therefore, the estimation could not be termed as unjustified, in any manner.- Appeal stands dismissed.

Summary

Issues:
- Contesting the order of Ld. Commissioner of Income Tax (Appeals) dated 26/08/2019 providing relief to the assessee on alleged bogus purchases for Assessment Year 2010-11.

Analysis:
1. The appeal by the revenue contested the order of the Ld. Commissioner of Income Tax (Appeals) dated 26/08/2019, which granted relief to the assessee on account of alleged bogus purchases for Assessment Year 2010-11. Despite no appearance by the assessee, the material on record was deemed sufficient for the appeal's disposal. The Ld. DR advocated for the restoration of the assessment framed by the Ld. AO.

2. The assessee, a resident individual engaged in manufacturing engineering goods, was assessed under section 143(3) r.w.s. 147 for the year in question. It was discovered that the assessee had allegedly made bogus purchases amounting to ?52.00 Lacs from nine entities, based on information from DGIT (Inv.) / Sales Tax Department, Mumbai. The case was reopened, and the assessee was asked to provide necessary details to support the purchases.

3. In defense of the purchases, the assessee submitted purchase bills, monthly sale & purchase details, and bank statements showing payments through banking channels. However, responses to notices issued under section 133(6) were unsatisfactory, and the suppliers could not confirm the transactions. The Ld. AO, after considering the facts and legal precedents, disallowed ?41.34 Lacs, with varying percentages for different parties. An alternative disallowance under section 40(A)(3) was also proposed.

4. The Ld. CIT(A), referring to a decision of the Hon'ble Gujarat High Court, estimated an addition of 25% on the aggregate purchases of ?52 Lacs. The revenue, aggrieved by this decision, appealed further.

5. Upon reviewing the factual details provided by the lower authorities, it was noted that the Sales Turnover was clear, primary purchase documents were available, and payments were made through banking channels. Given the nature of the assessee's business, where sales are dependent on purchases, it was deemed appropriate to estimate the profit element in the transactions. The Ld. CIT(A) considered the submissions and records, and the 25% estimation was seen as sufficient to address revenue leakage. Consequently, the appeal was dismissed as the estimation was found justified and no interference was warranted.

6. The appeal was ultimately dismissed, with the order pronounced on 1st June 2021.