2024 (1) TMI 1332 - AT - Income Tax

Estimation of income - bogus purchases - HELD THAT - Respectfully following the decision of the Tribunal in the case of the Appellant for the Assessment Year 2010-11 and 2011-12 2023 (3) TMI 1500 - ITAT MUMBAI we restrict the disallowance on account of bogus purchases to 7.5% of such bogus purchases - Assessee appeal partly allowed.

Issues Involved:

1. Disallowance of 100% of alleged bogus purchases amounting to INR 4,26,18,638/-.
2. Condonation of delay in filing the appeal by 1255 days.
3. Application of principles of natural justice and unjust enrichment.
4. Reliance on third-party information without independent verification.

Issue-wise Detailed Analysis:

1. Disallowance of 100% of Alleged Bogus Purchases:

The primary issue in the appeal was the disallowance of 100% of the alleged bogus purchases amounting to INR 4,26,18,638/-. The CIT(A) had enhanced the disallowance from 15% to 100%, relying on information from the Sales Tax Department and DGIT (Investigation) indicating that the appellant had accepted bogus accommodation entries. The appellant contended that the disallowance was based merely on presumptions without any conclusive findings or adverse material on record to prove that the purchases were non-genuine. The appellant argued that the sales reported were not questioned, and the audited books of accounts were not doubted by the assessing officer, thus the purchases should be treated as genuine. The Tribunal, referring to its earlier decision for the assessment years 2010-11 and 2011-12, restricted the disallowance to 7.5% of the alleged bogus purchases, acknowledging that the sales turnover and inventory were accepted by the department, and only the element of suppressed profits needed to be brought to tax.

2. Condonation of Delay in Filing the Appeal by 1255 Days:

The appeal was filed with a delay of 1255 days. The appellant sought condonation of this delay, citing personal and family health issues, including the demise of the appellant's father and the impact of the Covid-19 pandemic, which led to mental and financial instability. The appellant lost contact with the tax consultant during this period. The Tribunal considered the explanation provided by the appellant as reasonable and sufficient, especially in light of the Supreme Court's directive regarding the exclusion of the Covid-19 period from limitation calculations. The Tribunal emphasized the principle that substantial justice should prevail over technical considerations and condoned the delay, allowing the appeal to be decided on merits.

3. Application of Principles of Natural Justice and Unjust Enrichment:

The appellant argued that the disallowance of 100% of the purchases violated the principles of natural justice and unjust enrichment. The Tribunal noted that the principles of natural justice require that any adverse material used against the appellant should be disclosed, and the appellant should be given an opportunity to respond. The Tribunal's decision to restrict the disallowance to 7.5% was in line with ensuring that the appellant was not unjustly enriched by accepting the sales while disallowing the entire purchase amount.

4. Reliance on Third-party Information Without Independent Verification:

The appellant contended that the disallowance was based solely on third-party information from the Sales Tax Department and DGIT (Investigation) without any independent enquiry by the assessing officer. The Tribunal acknowledged this concern and noted that the assessing officer should have conducted an independent verification to substantiate the claim of bogus purchases. The decision to restrict the disallowance to 7.5% was influenced by the lack of independent verification and the acceptance of sales and inventory by the department.

Conclusion:

The Tribunal partly allowed the appeal by restricting the disallowance to 7.5% of the alleged bogus purchases, recognizing the need for substantial justice and the absence of independent verification by the assessing officer. The delay in filing the appeal was condoned, considering the reasonable explanation provided by the appellant. The decision underscores the importance of adhering to the principles of natural justice and ensuring that technicalities do not override substantial justice.

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