2021 (12) TMI 400 - AT - Income Tax

Estimation of income - Bogus purchases - Case was selected for scrutiny by issuing notice u/s. 143(2) of the Act. Assessing Officer based on information from the Sales Tax Department, Mumbai about the accommodation entries provided by various dealers and assessee was also one of the beneficiary from those dealers - HELD THAT - There should be an estimation of profit element from these purchases and should be estimated reasonably as the assessee could not conclusively prove that the purchases made are from the parties as claimed, especially in the absence of any confirmations from them. Taking the totality of facts and circumstances, keeping in view the nature of business of the assessee i.e. trader in Bright Steel Bars and Wire rods, it would be justified if the profit element embedded in those purchases are estimated at 12.5% - Appeal of the assessee is partly allowed.

Summary

Issues:
Enhancement of non-genuine purchases disallowance by Ld.CIT(A) to 100%

Detailed Analysis:
The appeal was filed against the order of the Ld.CIT(A) enhancing the purchases to 100% of Rs. 29,29,259 made from M/s. Geeta Bright, as against Rs. 10,08,634 disallowed by the Assessing Officer. The Assessing Officer treated the peak of purchases as non-genuine, suspecting accommodation entries without actual material transportation. The Ld.CIT(A) relied on a decision of the Bombay High Court in Shoreline Hotel Pvt. Ltd. to enhance the disallowance. The absence of the assessee during the appeal hearing led to the disposal of the appeal based on the arguments of the Ld. DR, who supported the lower authorities' orders.

An identical issue had been considered by a Coordinate Bench in another case, where the Tribunal directed the Assessing Officer to make disallowance in accordance with the decision of the Bombay High Court. The Coordinate Bench noted the distinguishing features of cases involving non-genuine purchases and emphasized that case law should be considered in context. The Tribunal found no similarity between the present case and the case considered by the Bombay High Court.

The ITAT Mumbai disagreed with the Ld.CIT(A)'s decision to enhance the disallowance to 100% of genuine purchases, citing precedents where only the profit element embedded in non-genuine purchases should be taxed. The ITAT referred to judgments by the Gujarat High Court to support the view that not the entire amount covered under such purchases should be subject to tax, but only the profit element. Considering the nature of the business and the inability of the assessee to conclusively prove the purchases' authenticity, the ITAT directed the Assessing Officer to estimate the profit element at 12.5% and restrict the disallowance accordingly.

In conclusion, the ITAT partly allowed the appeal, directing the computation of income based on estimating the profit element from non-genuine purchases at 12.5%. The judgment was pronounced in the virtual court on 10.11.2021.