2020 (10) TMI 876 - AT - Income Tax

Estimation of income - bogus purchases - NP estimation - CIT-A directed the AO to estimate profit @12.5% on the disputed purchases - HELD THAT - Assessee has filed before the AO copies of (i) bank statements for the financial year 2010- 11, evidencing the payments made to these parties; (ii) ledger account of all the parties; (iii) purchase invoices from these parties and (iv) sale invoices as issued by the assessee against the purchases made. AO could have made further verifications /enquiries. Without making any verification /enquiry, the AO has made the full addition. In such a situation like the above one, the Ld.CIT(A) has rightly relied on the judgment of the Hon ble Gujarat High Court in Bholonath Poly Fab (P) Ltd. 2013 (10) TMI 933 - GUJARAT HIGH COURT and directed the AO to estimate the profit @ 12.5% embedded in the disputed purchases - Decided against revenue.

Summary

Issues:
Appeal against CIT(A) order regarding addition of disputed purchases made by the assessee without complete verification.

Analysis:
The appeal before the ITAT Mumbai involved the assessment year 2011-12 and concerned the revenue's challenge against the CIT(A)'s decision regarding the addition of disputed purchases made by the assessee. The assessee, engaged in the business of resale of iron & steel, had filed his return declaring a total income of ?3,09,541. The AO, based on information received, reopened the assessment due to alleged bogus purchases from hawala parties during the relevant financial year. The assessee provided bank statements, ledger accounts, purchase invoices, and sale invoices, but the AO found the explanation insufficient due to lack of direct and indirect evidence like stock registers, delivery challans, etc. Consequently, the AO made an addition of ?5,37,112.

The assessee then appealed to the CIT(A), who directed the AO to estimate profit at 12.5% on the disputed purchases. The revenue, represented by the DR, argued before the ITAT that due to the assessee's failure to provide essential documents during assessment proceedings, the full addition should be upheld. However, the ITAT noted that the assessee had submitted relevant documents, and the AO failed to conduct further verifications or inquiries before making the complete addition.

The ITAT upheld the CIT(A)'s decision, citing the judgment of the Hon'ble Gujarat High Court in a similar case, and confirmed the estimation of profit at 12.5% on the disputed purchases. Consequently, the appeal filed by the revenue was dismissed, affirming the CIT(A)'s order. The judgment was pronounced through a notice board under the applicable rules.