2020 (10) TMI 831 - AT - Income Tax

Estimation of income - Bogus purchases - only reason for which AO doubted the genuineness of transaction was, the assessee could not produce the concerned parties - CIT-A estimated the suppressed profit at 12.5% of the alleged non genuine purchases - HELD THAT - Inability to produce the parties could be for various factors, including, their non cooperation with the assessee. But, that by itself cannot be a reason to disallow the entire purchase by treating them as non genuine. Assessee has furnished all documentary evidences including stock statement showing the consumption of material at site which were also submitted to bank from where the assessee is availing cash credit facility. The aforesaid fact clearly proves that the assessee, indeed, had purchased the goods and the goods have entered its stock and were utilized/consumed in the work. The doubt, if any, is only with regard to the source of purchases. In such circumstances, the entire purchases cannot disallowed. As rightly observed by Commissioner (Appeals), only the profit element embedded in such purchases can be considered for disallowance. Considering the nature of business carried on by the assessee, in our considered opinion, disallowance @ 12.5% of the alleged non genuine purchases is fair and reasonable. Hence, needs to be upheld. - Revenue appeal dismissed.

Summary

Issues:
Challenge of partial relief granted by the learned Commissioner of Income Tax (Appeals) regarding non-genuine purchases.

Analysis:
The appeal was filed by the Revenue challenging the order passed by the Commissioner of Income Tax (Appeals) related to the assessment year 2015-16 concerning non-genuine purchases. During the virtual court hearing, no one represented the respondent assessee, leading to an ex-parte disposal of the appeal. The original assessment was re-opened under section 147 of the Act due to bogus purchase transactions identified during a survey. The Assessing Officer disallowed the entire purchase amount from three parties as the assessee failed to prove the genuineness of the transactions.

The learned Commissioner (Appeals) agreed that the assessee couldn't prove the source of purchases but noted that the consumption/sales of the material purchased were not doubted. Hence, he estimated the suppressed profit at 12.5% of the alleged non-genuine purchases and restricted the disallowance to that amount. The Revenue, however, argued that if purchases couldn't be proven, the entire amount should be disallowed.

Upon review, the ITAT found that the assessee had provided all documentary evidence to prove the genuineness of purchases, including creditworthiness checks and bank statements. The goods purchased were essential for the construction business, and the Assessing Officer had acknowledged the factual position. The inability to produce the concerned parties was not sufficient reason to treat the purchases as non-genuine. The ITAT upheld the Commissioner's decision to disallow only the profit element embedded in the purchases, considering the nature of the business.

The ITAT dismissed the Revenue's appeal, stating that the decision of the Hon'ble Supreme Court cited by the Revenue was not applicable to the current case. The grounds raised by the Revenue were therefore dismissed, and the appeal was concluded in favor of the assessee.

In conclusion, the ITAT upheld the partial relief granted by the Commissioner of Income Tax (Appeals) regarding non-genuine purchases, emphasizing the importance of considering the profit element in such cases and the specific circumstances of the business involved.