2024 (5) TMI 1446 - HC - Income Tax

Estimation of income - bogus purchases - ITAT restricting disallowance to 12.5% of purchases - HELD THAT - In the present case, the indisputable fact is that assessee had furnished copy of the tax audit report, P L A/c and balance-sheet. Assessee also filed purchase bills, payments made by cheques to all suppliers, their ledger accounts, PAN Card, bank statements, purchase confirmation of suppliers, etc. AO did not accept the evidence but instead, added the amount in assessee s income. AO, however, has not disputed the sales made by assessee out of such purchases. The ITAT has given detailed findings for justifying addition to the extent of 12.5% only. The Courts have time and again held that only the profit element in the alleged bogus purchases amount can be treated as income, particularly, when the sales has not been disputed. CIT(A) restricted the addition by estimating the gross profit at 12.5%. Whether that is a right estimate is a question of fact. The ITAT has accepted it. Therefore, we see no reason to interfere. Appeals dismissed.

Summary

Issues Involved: Reopening of assessments u/s 148 of the Income Tax Act, 1961 based on information from Sales Tax Department leading to disallowance of purchases and addition to total income. Appeal against order of Income Tax Appellate Tribunal (ITAT) restricting disallowance to 12.5% of purchases.

Summary:
1. The Assessing Officer (AO) reopened assessments for Assessment Years (AY) 2006-07 to 2009-10 u/s 148 of the Income Tax Act based on information from Sales Tax Department regarding accommodation entries by certain dealers. AO disallowed purchases amounting to Rs. 26,96,787/- for AY 2006-2007, added to Assessee's total income. Commissioner of Income Tax (Appeals) (CIT(A)) upheld the addition, ITAT partially reversed it to 12.5% of purchases, impugned in the present Appeal.

2. CIT(A) and ITAT found Assessee provided ledger copies, purchase bills, bank statements, proof of payment via cheques to establish transaction genuineness. AO relied on Sales Tax Department info without issuing Section 133(6) notices to suppliers. ITAT noted AO did not doubt sales from purchases, suggesting further investigations were warranted.

3. ITAT held inability to produce dealers doesn't render all purchases bogus; AO should have probed further for transaction genuineness. Factually, Assessee submitted tax audit report, financial statements, purchase evidence, supplier details, and payment proofs. ITAT justified 12.5% addition as profit element from alleged bogus purchases, considering undisputed sales. CIT(A) limited addition based on gross profit estimation, upheld by ITAT.

4. The Court affirmed ITAT's decision, emphasizing the need for factual assessment on bogus purchases and profit element inclusion. Given Assessee's evidence and ITAT's findings, the 12.5% addition was deemed appropriate. Dismissed the Appeals.