2020 (4) TMI 620 - AT - Income Tax

Bogus purchases - Hawala purchases - CIT(A) restricting the addition at 12.5% as against 18% made by the AO - HELD THAT In a case where purchases are considered to be purchases from suspicious/hawala dealers, various High Courts and Tribunals had considered and identical issue in light of investigation carried out by the Sales Tax Department and held that in case of purchases claims to have made from alleged hawala dealers, only profit element embedded in those purchases needs to be taxed, but not total purchases from those parties. Considering facts and circumstances of this case and consistent with view taken by the Co-ordinate Bench in number of cases, we are of the considered opinion that the Ld. CIT(A) has taken fair view and estimated 12.5% gross profit on alleged bogus purchases to settle dispute between the parties.

Summary

Issues:
1. Restriction of addition for hawala purchases by CIT(A) compared to AO's assessment for A.Y 2009-10 & 2010-11.

Analysis:
The Revenue filed appeals against the CIT(A)'s orders for A.Y 2009-10 & 2010-11 regarding the addition made by the AO for hawala purchases. The AO had made an 18% addition, but the CIT(A) restricted it to 12.5%. The Revenue contended that the CIT(A) erred in reducing the addition without considering key factors. They argued that the payments made through cheques did not prove the genuineness of transactions. The CIT(A) based the reduction on decisions of the High Court and the Supreme Court regarding similar cases. The assessee claimed the purchases were genuine and supported by evidence. The ITAT noted that both parties failed to conclusively prove their cases with necessary evidence. The AO relied on information from the Sales Tax Department and investigation wing, while the assessee provided basic evidence but failed to provide further conclusive proof. The ITAT referenced previous cases where only the profit element of purchases from suspicious dealers was taxed, not the total amount. The ITAT upheld the CIT(A)'s decision to estimate a 12.5% gross profit on the alleged bogus purchases, considering the nature of the business and lack of definitive evidence supporting the rates chosen by either party.

Judgment:
The ITAT dismissed the Revenue's appeals for both A.Y's, upholding the CIT(A)'s decision to restrict the addition for hawala purchases to 12.5% gross profit. The ITAT found the CIT(A)'s approach fair and in line with previous decisions, considering the lack of concrete evidence from both parties to support their respective positions.