2017 (3) TMI 811 - AT - Income Tax

Disallowance of bogus purchases - estimated profit rate at 12.5% - Held that - We find that admittedly the assessee has made sales but could not produce the parties before the AO or before CIT(A) from whom the purchases were made. Even during an inquiry the Revenue could not trace these parties i.e. either the transporters or the sellers. Admittedly these parties from whom the assessee has made bogus purchases are hawala dealers declared by sale tax department of Maharashtra. In such circumstances we are of the view that the CIT(A) has reasonably estimated profit rate on bogus purchases and rightly estimated at 12.5% of the bogus purchase. We confirm the order of CIT(A) and appeal of assessee is dismissed.

Summary

Issues:
- Disallowance of 12.50% of bogus purchases as estimated profit rate.

Analysis:
1. The appeal concerns the disallowance of 12.50% of purchases made from parties listed as suspicious dealers on the Maharashtra Sales Tax Department website. The primary contention is that recent case laws from Mumbai ITAT and High Court have ruled in favor of not disallowing purchases from such parties. The appellant argues that these judgments supersede the basis on which the CIT(A) made the disallowance.

2. The appellant, engaged in the iron and steel trading business, declared total purchases of ?97,16,75,822. The issue arose when the AO received information from the sales tax department regarding purchases from hawala parties amounting to ?3,48,41,491. Despite producing various details and bills, the appellant could not provide evidence of the legitimacy of these purchases. The AO treated these purchases as bogus and made a 25% disallowance as profit. The CIT(A), following the Ahmedabad Bench ITAT decision, restricted the disallowance to 12.5% of the bogus purchases.

3. The Tribunal upheld the CIT(A)'s decision, noting that the appellant failed to produce evidence of the actual parties from whom the purchases were made. Given that the sellers were untraceable and identified as hawala dealers, the 12.5% estimated profit rate on bogus purchases was deemed reasonable. The Tribunal dismissed the appeal, affirming the CIT(A)'s order.

In conclusion, the Tribunal upheld the CIT(A)'s decision to disallow 12.5% of the purchases from suspicious dealers as profit, considering the lack of evidence regarding the legitimacy of these transactions. The appellant's appeal was dismissed, and the disallowance amount was reduced to ?43,55,186 from the initial ?87,10,372 determined by the AO.