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2022 (6) TMI 366 - AT - Income TaxEstimation of income - Bogus purchases - Assessee failed to discharge his onus of proving the purchases - CIT-A Granting part relief by making addition of 25% of the bogus purchases - HELD THAT - Argument of the Revenue is misconceived because even the AO has not applied any legal yardstick by conducting any enquiry rather proceeded to rely upon the information sent by Sales Tax Department of Maharashtra and made adhoc additions. Identical issue has also been decided in case of JK Surface Coatings Pvt. Ltd. 2021 (10) TMI 1323 - BOMBAY HIGH COURT . Thus we are of the considered view that the Ld. CIT(A) has legally and validly decided the issue and finding no illegality or perversity in the same, appeal filed by the Revenue is hereby dismissed.
Issues:
1. Addition of bogus purchases - deletion of part of the addition by CIT(A) 2. Failure to prove genuineness of purchases by the assessee 3. Legal validity of the decision by CIT(A) to delete part of the addition Analysis: Issue 1: Addition of bogus purchases - deletion of part of the addition by CIT(A) The appellant, an Income Tax Officer, filed an appeal seeking to set aside the order passed by the Commissioner of Income Tax (Appeals) regarding the addition of Rs. 5,45,249 out of the total addition of Rs. 7,26,999 made on account of bogus purchases for the assessment year 2009-10. The assessment was reopened based on information regarding accommodation entries for bogus purchases. The Assessing Officer (AO) found the purchases non-genuine as the supplier did not respond to notices, and the assessee failed to prove the purchases' genuineness. The CIT(A) partly allowed the appeal, adding 25% of the bogus purchases to the income of the assessee. The Tribunal upheld the CIT(A)'s decision, citing legal precedents and the need to prove the genuineness of purchases. Issue 2: Failure to prove genuineness of purchases by the assessee The appellant failed to discharge the onus of proving the genuineness of the purchases, leading to the addition of the entire amount of bogus purchases. Despite producing some documents during the appellate proceedings, the appellant did not comply with the information requests under section 133(6) of the Income Tax Act. The CIT(A) emphasized the importance of proving the genuineness of transactions for claiming deductions. The Tribunal considered the low profit margins declared by the assessee and the legal principle that tax should be levied only on real income, highlighting the need to deduct the cost of purchases from sales. Issue 3: Legal validity of the decision by CIT(A) to delete part of the addition The Revenue contended that the CIT(A) should not have restricted the addition to 25% of the bogus purchases. However, the Tribunal found the CIT(A)'s decision legally sound, as the AO had not conducted a proper enquiry and relied on adhoc additions based on information from the Sales Tax Department. The Tribunal referred to a similar case decided by the Bombay High Court regarding the extent of ad-hoc disallowance for bogus purchases. The Tribunal concluded that the CIT(A) had validly decided the issue, dismissing the Revenue's appeal. In conclusion, the Tribunal upheld the CIT(A)'s decision to delete part of the addition of bogus purchases, emphasizing the importance of proving the genuineness of transactions and following legal precedents in determining the income tax liability.
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