2020 (12) TMI 1185 - AT - Income Tax

Estimation of income - bogus purchases - CIT(A) restricting the disallowance of purchases to 12.5% as against 15% done by the AO - HELD THAT - CIT(A) considered this aspect of the matter elaborately with reference to the submissions of the assessee and the averments in the Assessment Order and following case of CIT v. Simit P. Sheth 2013 (10) TMI 1028 - GUJARAT HIGH COURT correctly restricted the disallowance to 12.5% of the non-genuine purchases. Appeal of the Revenue is dismissed.

Summary

Issues Involved:
1. Legitimacy of the disallowance percentage for non-genuine/bogus purchases.
2. Adherence to principles of natural justice.
3. Genuineness of purchase transactions based on payments through account payee cheques.
4. Estimation of profit embedded in bogus purchases.

Issue-wise Detailed Analysis of the Judgment:

1. Legitimacy of the Disallowance Percentage for Non-Genuine/Bogus Purchases:
The Revenue's appeal contested the Ld.CIT(A)'s decision to restrict the disallowance of purchases to 12.5% instead of the 15% determined by the Assessing Officer (AO). The AO had treated 15% of the purchases amounting to ?40,33,800/- as non-genuine and added it to the assessee's income. The Ld.CIT(A), after considering various submissions and evidence, including the decision of the Hon'ble Gujarat High Court in CIT v. Simit P. Sheth [356 ITR 451], restricted the disallowance to 12.5%. The Tribunal upheld this restriction, finding no infirmity in the Ld.CIT(A)'s order.

2. Adherence to Principles of Natural Justice:
The assessee argued that the AO did not share details received from the Sales Tax Department or statements given by suppliers, thus violating natural justice principles. The Ld.CIT(A) concluded that the AO had disclosed the adverse evidence and material relied upon in the order and provided ample opportunity for the assessee to rebut the objections. The Tribunal agreed with this conclusion, noting that the AO had not solely relied on the material gathered by the Sales Tax Authority but had used it as collateral evidence. The Tribunal found no violation of natural justice principles.

3. Genuineness of Purchase Transactions Based on Payments Through Account Payee Cheques:
The assessee contended that all payments were made through account payee cheques, asserting the genuineness of the purchases. The Ld.CIT(A) dismissed this argument, citing judicial precedents that payments made by cheques do not inherently establish the genuineness of transactions. The Tribunal supported this view, referencing cases such as CIT & Ors. vs. Saravana Constructions (P.) Ltd. and CIT vs. P. Mohanakala & Ors., which held that the genuineness of transactions must be established by independent supporting evidence, not merely by cheque payments.

4. Estimation of Profit Embedded in Bogus Purchases:
The Ld.CIT(A) reasoned that the material in question was likely received, as corresponding sales were made, but not from the parties shown in the records. It was inferred that the materials were purchased from different sources at lower rates, possibly to evade taxes. The Ld.CIT(A) estimated the profit embedded in the bogus purchases at 12.5%, a rate upheld by various courts and tribunals, including the Hon'ble Gujarat High Court in CIT v. Simit P Sheth and the ITAT, Bombay Tribunal. The Tribunal found this estimation reasonable and upheld the Ld.CIT(A)'s decision.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the Ld.CIT(A)'s order to restrict the disallowance to 12.5% of the purchases, citing no infirmity in the Ld.CIT(A)'s detailed and reasoned decision. The appeal of the Revenue was dismissed, and the order was pronounced on 23.10.2020.