2020 (4) TMI 220 - AT - Income Tax

Disallowance of bogus purchases - Addition @ 12.5% of the aggregate of disputed purchases - HELD THAT - CIT(A) affirmed the action of AO holding that disallowance of 12.5% in the business of wholesale trading of electronic items such as computer parties, accessorises, print cartridges and Sony tapes are rational and justified. We have noted that before us the assessee has not filed even a single document to substantiate his contention. We are conscious of the fact that under the income tax proceeding only tax can be levied on the income component and not on the entire transaction. Even the entire transaction are not verifiable the lower authorities are entitled to tax the income component of transaction only. We have noted that lower authorities have made the disallowance keeping in view the nature and business activities of the assessee and disallowed 12.5% of the tainted purchases. In our view, the Assessing Officer has made a reasonable disallowance, which does not require any interference at our end - Appeal of the assessee is dismissed.

Summary

Issues:
Appeal against orders of ld. Commissioner of Income Tax (Appeals) for Assessment Year 2010-11 & 2011-12 - Disallowance of 12.5% of purchases made by the appellant - Alleged bogus purchases - Failure to produce evidence of transportation of goods - Disallowance upheld by lower authorities.

Analysis:
1. Background: The appellant, engaged in trading computer parts, filed returns for Assessment Year 2010-11. The assessment was re-opened under section 147 based on information from the Sale Tax Department regarding hawala dealers providing accommodation entries. The Assessing Officer noted purchases from parties declared as hawala dealers.

2. Assessing Officer's Findings: The Assessing Officer found the appellant failed to produce evidence of transportation of goods and Lorry receipt, and notices under section 133(6) were returned. The AO concluded that purchases were inflated through fictitious invoices from bogus parties, disallowing 12.5% of the total purchases as a result.

3. Appeal and Dismissal: The appellant appealed the disallowance, but no representation was made during the hearing. The lower authorities upheld the disallowance, stating that the disallowance of 12.5% on tainted purchases was rational and justified. The appellant failed to provide any documents to support their case.

4. Judgment: The Tribunal affirmed the lower authorities' decision, emphasizing that tax is leviable on real income, not the entire transaction. The disallowance of 12.5% was considered reasonable given the nature of the business activities. The appeal was dismissed for both Assessment Years 2010-11 and 2011-12, with similar observations and reasoning applied to both cases.

5. Conclusion: The Tribunal upheld the disallowance of 12.5% of purchases made by the appellant, citing the lack of evidence to substantiate the transactions. The decision highlighted the importance of verifying real income and rational disallowances in such cases. The appeal was dismissed for both years, emphasizing the need for proper documentation and compliance with tax regulations.