2018 (8) TMI 2157 - AT - Income Tax

Estimation of income - bogus purchases - addition @ 12.5% of bogus purchases sustained by CIT(A) - HELD THAT - We have noted that before the ld. CIT (A), the assessee has furnished the Gross Profit margin for earlier and subsequent Assessment Year. CIT (A) has not given any finding on such submission of the assessee. As noted that in assessee s brothers case, the co-ordinate bench of Tribunal in ITO-19 (3) (1) , Mumbai Versus Shri Ratnaram K. Chaudhari 2017 (11) TMI 1142 - ITAT MUMBAI sustained the similar disallowance @ 6.5%. As the Gross Profit declared by assessee for the year @ 5.76%. We are of the view that disallowance @ 6.5% would be sufficient to avoid the possibility of revenue leakage. Therefore, we direct the Assessing Officer to restrict the disallowance on account of bogus purchases @ 6.5%. Appeal of the assessee is partly allowed.

Summary

Issues:
1. Validity of re-opening assessment under section 147 of the Income Tax Act.
2. Sustaining the addition of 12.5% on account of non-genuine purchases.

Issue 1: Validity of re-opening assessment under section 147 of the Income Tax Act:
The appeal challenged the order of the Commissioner of Income-tax (Appeals) confirming the Assessing Officer's decision to reopen the assessment under section 147 of the Act. The appellant contended that the re-opening was erroneous. The Tribunal noted that the appellant did not press any arguments against this ground, leading to its dismissal.

Issue 2: Sustaining the addition of 12.5% on account of non-genuine purchases:
The case involved the appellant, a trader in Ferrous and Non-Ferrous Metals, who declared a total income for Assessment Year 2009-10. The assessment was re-opened based on information from the Investigation Department, suspecting non-genuine purchases. The Assessing Officer added 12.5% to the alleged non-genuine purchases as a profit element. The Commissioner of Income-tax (Appeals) upheld this decision. The appellant argued that all purchases were genuine, supported by evidence. The Departmental Representative claimed the purchases were accommodation bills to inflate expenses. The Tribunal observed that the Assessing Officer did not discuss the documentary evidence provided by the appellant regarding purchases and sales. In a similar case involving the appellant's brother, a 6.5% addition was sustained. Considering this precedent and the appellant's declared Gross Profit margin, the Tribunal directed the Assessing Officer to restrict the disallowance to 6.5%.

In conclusion, the Tribunal partly allowed the appeal, restricting the disallowance on account of bogus purchases to 6.5%.