2021 (1) TMI 9 - AT - Income Tax

Bogus purchases - CIT(A) restricting the addition made on account of non genuine purchases at 12.5% of value of purchases as against 100% made by the Ld. AO - HELD THAT - It is not in the dispute that the assesee had indeed made purchases from certain parties whose names appeared in the list of hawala bills maintained by the sales tax department, Government of Maharashtra, but however the assessee could not prove the genuineness of such purchases - There could not be any sales without making purchases. Hence, it could be safely presumed that assessee could have made purchases from the grey market in order to saving indirect taxes and incidental profit element thereon. CIT(A) had reasonably estimated such profit element to be at 12.5% of the value of disputed purchases, which is prevalent rate adopted by this Tribunal in series of decisions considering the nature of industry in which the assessee is engaged in, which is also approved by the Hon ble Gujarat High Court in the case CIT vs Simith P.Sheth 2013 (10) TMI 1028 - GUJARAT HIGH COURT - No infirmity in the order of the Ld.CIT(A) in this regard - Appeal of revenue dismissed.

Summary

Issues Involved:
- Justification of restricting addition on non-genuine purchases to 12.5% instead of 100%

Analysis:

Issue 1: Justification of restricting addition on non-genuine purchases to 12.5% instead of 100%
The appeal pertained to the assessment year 2011-12 where the Revenue challenged the decision of the Commissioner of Income Tax (Appeals) to restrict the addition made on account of non-genuine purchases to 12.5% of the value of purchases instead of 100% as determined by the Income Tax Officer. The assessee, an individual trader dealing in metal, was found to have made purchases from parties listed as tainted dealers by the Sales Tax Department of the Government of Maharashtra. The Income Tax Officer sought to verify the genuineness of these purchases, but the assessee failed to provide new addresses of the parties or produce them for examination. Consequently, the Income Tax Officer treated the purchases as unexplained expenditure and made an addition under section 69C of the Income Tax Act.

The assessee contended that all payments were made via account payee cheques to the suppliers, relevant purchase bills were produced, and the sales corresponding to the disputed purchases were not doubted by the Revenue. The assessee argued that only the profit element embedded in the disputed purchases should be taxed. The Commissioner of Income Tax (Appeals) relied on a decision of the Gujarat High Court and held that since the sales were not disputed, only the profit element could be taxed, estimated at 12.5% of the disputed purchases. The Tribunal found that the Revenue did not dispute the corresponding sales made out of the disputed purchases and no contrary evidence was produced. It was noted that while the genuineness of purchases could not be proven, purchases were necessary for sales to occur. Therefore, the Tribunal upheld the Commissioner's decision to tax the profit element at 12.5% of the disputed purchases, considering the nature of the industry and past Tribunal decisions. The Tribunal dismissed the Revenue's appeal, affirming the Commissioner's order.

In conclusion, the Tribunal upheld the decision to restrict the addition on non-genuine purchases to 12.5% of the value instead of 100%, based on the principle that only the profit element embedded in the disputed purchases could be taxed when corresponding sales were not disputed. The Tribunal found the estimation of the profit element at 12.5% to be reasonable, considering the circumstances of the case and past judicial precedents.