2021 (3) TMI 150 - AT - Income Tax

Estimation of income - addition of bogus purchases - disallowance restricted @ 5% - HELD THAT - We are of the considered view that no doubt the purchases made from the suspected parties are not genuine. However, the purchases itself cannot be doubted as rightly adjudicated by Ld. CIT(A) that AO has not doubted sales declared by the assessee, only he suspects the purchases. By respectfully following the decision in the case of CIT vrs. Smith P. Sheth 2013 (10) TMI 1028 - GUJARAT HIGH COURT we are inclined to agree with the findings of Ld. CIT(A). Therefore, grounds raised by the revenue are dismissed.

Summary

Issues:
1. Assessment Year 2010-11: Appeal against Ld. CIT(A) order.
2. Ex-parte hearing due to absence of assessee.
3. Reopening of assessment based on accommodation entries.
4. 100% addition on account of bogus purchases.
5. Ld. CIT(A) decision to partly allow the appeal.
6. Revenue's appeal against Ld. CIT(A) decision.
7. Disallowance of purchases from non-existent vendors.
8. Onus of justifying expenses on the assessee.
9. Lack of supporting documents for purchases.
10. Disallowance of unverifiable purchases in entirety.

Analysis:

1. The Appellate Tribunal ITAT Mumbai heard an appeal against the Ld. CIT(A) order for Assessment Year 2010-11. Despite the absence of the assessee and no adjournment request, the hearing proceeded ex-parte with the assistance of the Ld. DR. The assessment was reopened based on information about accommodation entries obtained by the assessee.

2. The assessment resulted in a 100% addition on account of bogus purchases. The Ld. CIT(A) partly allowed the appeal, reducing the disallowance to 5% based on the decision of the Hon'ble Gujarat High Court. The revenue, aggrieved by this decision, raised several grounds challenging the Ld. CIT(A)'s findings.

3. The revenue contended that the genuineness of purchases from non-existent vendors was not established by the assessee, as per information from the Sales Tax Department. They argued that the onus to justify expenses lies with the assessee, who failed to discharge it regarding purchases from non-existent vendors.

4. Additionally, the revenue claimed that the assessee could not substantiate purchases from non-existent vendors with relevant supporting documents. They argued that once purchases are unverifiable or bogus, they should be disallowed entirely, citing a decision of the Hon'ble Gujarat High Court.

5. The Tribunal, after considering the submissions and material on record, upheld the Ld. CIT(A)'s decision. They agreed that while purchases from suspected parties may not be genuine, the purchases themselves cannot be doubted. The Tribunal dismissed the grounds raised by the revenue and ultimately dismissed the appeal.

6. The Tribunal pronounced the orders on 25.01.2021, upholding the Ld. CIT(A)'s decision to partly allow the appeal and reducing the disallowance to 5% of the bogus purchases.