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2021 (3) TMI 787 - AT - Income TaxEstimation of income - bogus purchases - AO estimated the profit @ 12.5% of the disputed purchases - HELD THAT - In the instant case, the AO has recorded the statement of Shri Hiten Parekh, proprietor of M/s Hiten Enterprises, from whom the assessee claimed to have made the purchases. In that statement, Shri Parekh has stated before the AO categorically that he had done genuine business with M/s Smita Electrical Industries (the assessee) and the entries were through Jain Sahakar Bank Ltd., Mandvi Branch, Mumbai-400003. AO could have made further inquiries/investigations to dislodge the above statement of Shri Parekh. However, the AO has not done even preliminary inquiry to verify the contentions of Shri Parekh. AO has also noted in the assessment order at page 6 that the assessee was able to correlate the purchases of materials with the allocation of raw materials and sale of finished goods. CIT(A) has rightly deleted the estimated profit @ 12.5% on purchases of ₹ 18,93,737/- from Hiten Enterprises. He has rightly restricted the disallowance to 12.5% of purchases of ₹ 26,719/- from Raj Traders.
Issues:
- Addition of alleged bogus purchases from M/s Hiten Enterprises - Failure to substantiate the genuineness of purchase transactions - Non-production of parties by the assessee as requested by the AO - Purchases made from unrecorded parties and accommodation bills obtained from hawala parties - Tax effect below monetary limit but based on information from external sources Analysis: 1. Alleged Bogus Purchases from M/s Hiten Enterprises: - The Revenue appealed against the deletion of an addition of ?2,36,717 made for alleged bogus purchases from M/s Hiten Enterprises. - The AO estimated profit at 12.5% of disputed purchases and made an addition of ?2,40,057. - The CIT(A) found that the AO lacked evidence contradicting the genuineness of the transactions with Hiten Enterprises. - The CIT(A) noted the appellant's ability to correlate purchases with raw material allocation and sales of finished goods, leading to the deletion of the addition. 2. Failure to Substantiate Purchase Transactions: - The Revenue argued that the onus was on the assessee to explain and substantiate the true nature of the purchase transaction. - The CIT(A) held that the appellant provided sufficient evidence to establish the genuineness of the purchases from Hiten Enterprises. 3. Non-Production of Parties Requested by AO: - The AO mentioned that the assessee failed to produce parties as requested, specifically by the AO. - Despite this, the CIT(A) found the evidence provided by the appellant to be satisfactory in establishing the authenticity of the transactions. 4. Purchases from Unrecorded Parties and Accommodation Bills: - The Revenue contended that purchases were made from unrecorded parties, with accommodation bills obtained from hawala parties. - The CIT(A) did not find merit in the addition based on presumptions and restricted it to a nominal amount, considering the evidence presented by the appellant. 5. Tax Effect Below Monetary Limit: - The case had a tax effect below the monetary limit prescribed by CBDT Instruction No. 3/2018. - However, an exception applied due to the information received from external sources like Sales Tax Authorities, justifying the addition based on such information. In conclusion, the ITAT Mumbai dismissed the Revenue's appeal, affirming the CIT(A)'s order based on the evidence and circumstances of the case. The judgment highlighted the importance of substantiating transactions, providing satisfactory evidence, and conducting thorough inquiries before making additions based on presumptions.
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