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2018 (12) TMI 1446 - AT - Income TaxAddition on account of non-genuine purchases - CIT-A directed AO to restrict the disallowance to 12.5% of the purchases made from the hawala operators - Held that - Neither before the AO nor before the CIT(A) the assessee could establish the genuineness of the purchases made from the concentrated parties through proper documentary evidences. Further, even before me also the assessee has not produced any material to prove the genuineness of the purchases made. However, as rightly observed by the CIT(A), the AO has not doubted the sales effected by the assessee. Therefore, as a natural corollary it has to be assumed that in the absence of purchases made, the assessee could not have effected the sales. Only the profit element embedded in the non-genuine purchases can be considered for addition to prevent leakage of revenue. Admittedly, the learned CIT(A) has restricted the addition made to the profit element embedded in the bogus purchase by estimating the same at 12.5%. The estimation of profit at 12.5% as made by the CIT(A), in my view, being reasonable needs no interference. - Decided against assessee.
Issues:
Addition of non-genuine purchases in the assessment for A.Y. 2010-11. Analysis: The case involved an appeal filed by the assessee against the Commissioner of Income Tax (Appeals)-16, Mumbai's order regarding the addition of ?3,35,062 on account of non-genuine purchases for the assessment year 2010-11. The assessee, a company engaged in fabrication, engineering, and trading in aluminum products, initially declared a total income of ?4,61,370. The Assessing Officer (AO) reopened the assessment under section 147 of the Income Tax Act based on information received that purchases worth ?26,80,492 claimed from certain parties were not genuine. The AO observed that the assessee failed to prove the genuineness of the purchases, as transport details, delivery challans, and concerned parties were not adequately presented. The AO treated the non-genuine purchases as unexplained expenditure under section 69C of the Act and added it to the assessee's income. The assessee appealed to the CIT(A), who, considering the facts and judicial precedents, held that while the entire purchases could not be disallowed, the profit element embedded in such purchases could be considered for addition. The CIT(A) directed the AO to restrict the disallowance to 12.5% of the purchases made from the identified parties. During the appeal hearing, the assessee did not appear, leading to an ex-parte disposal of the appeal. The Judicial Member noted that the assessee failed to establish the genuineness of the purchases with proper documentary evidence before the AO, CIT(A), or during the current proceedings. However, since the sales were not doubted, it was assumed that the assessee could not have made sales without purchases. Therefore, only the profit element from the non-genuine purchases was considered for addition to prevent revenue leakage. The Judicial Member found the CIT(A)'s estimation of profit at 12.5% reasonable and dismissed the grounds raised by the assessee. In conclusion, the appeal filed by the assessee was dismissed, and the addition of non-genuine purchases for the assessment year 2010-11 was upheld.
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