2020 (10) TMI 553 - AT - Income Tax

Estimation of income - bogus purchases - purchases through the grey market - HELD THAT - In several decisions it has been held that disallowance on account of bogus purchases should be done by reducing the gross profit already disclosed from the standard 12.5% disallowance being done. Hon ble Jurisdictional High Court in the case of Adam H Kazi 2019 (2) TMI 1632 - BOMBAY HIGH COURT has held that the disallowance regarding bogus purchases should be restricted to the difference between gross profit on normal purchases and purchases through bogus routes. We also note that several decisions that ITAT has considerably lowered the disallowance on account of bogus purchase. Accordingly, we direct that disallowance in this case be restricted to 10% of the bogus purchases. Additions on account of mismatch in 26AS (TDS) statement and accounting entries on account of contract report - submission of assessee that difference reflected in 26AS statement is a mistake, however, no evidence has been submitted - HELD THAT - Merely stating that there is a mistake cannot suffice. The issue needs proper verification at the level of AO. Hence, we remit this issue the file of AO to examine has assessee s submission that the said receipt reflected in 26AS statement is factually incorrect. The assessee should be granted adequate opportunity of being heard.

Summary

Issues:
1. Disallowance on account of bogus purchases
2. Disallowance on account of mismatch in 26AS statement

Analysis:
Issue 1: Disallowance on account of bogus purchases
The appellant contested the part disallowance on the grounds of bogus purchases sustained by the Ld. CIT(A) for the assessment year 2009-10. The appellant, engaged in the business of building material supply, faced a reassessment due to information from the sales tax department regarding alleged bogus purchases. Although the appellant provided purchase vouchers and made payments through banking channels, the suppliers were not produced before the assessing officer. The income tax officer made a 100% addition for bogus purchases, resulting in a disallowance of &8377; 87,28,132. The Ld. CIT(A) confirmed the disallowance partially, upholding 12.5% of purchases and 100% for purchases from a specific party, M/s. Manav Impex. The ITAT noted that when sales are not doubted, a 100% disallowance for bogus purchases cannot be justified, as no sales can occur without actual purchases. Citing a jurisdictional High Court decision, the ITAT directed the disallowance to be limited to 10% of the bogus purchases made through the grey market, emphasizing the need to reduce the disallowance from the disclosed gross profit.

Issue 2: Disallowance on account of mismatch in 26AS statement
Another issue raised was the disallowance sustained due to a mismatch in the contract receipt as reflected in the 26AS statement. The appellant argued that the difference was a mistake, but failed to provide evidence to support this claim. The ITAT deemed a mere assertion of a mistake insufficient and remitted the issue back to the assessing officer for proper verification. The assessing officer was directed to examine the appellant's submission regarding the incorrectness of the receipt reflected in the 26AS statement, granting the appellant an opportunity to present their case.

In conclusion, the ITAT partly allowed the appeal of the assessee, directing a reduced disallowance percentage for bogus purchases and remitting the issue of mismatched contract receipts for further examination by the assessing officer.