2021 (5) TMI 762 - AT - Income Tax

Estimation of income - bogus purchases - CIT(A) was justified in restricting the profit element embedded in respect of alleged bogus purchases at 3% as against 9% made by the ld. AO - HELD THAT - We find that this Tribunal going by the gross profit ratio of the assessee in earlier years had decided in assessee s own case 2021 (4) TMI 799 - ITAT MUMBAI in similar facts and circumstances by adopting the profit element at 1% of value of ingenuine purchases. Respectfully following the said decision, we hold that 1% profit element on the value of ingenuine purchases would meet the ends of justice. Disallowance on an estimated basis at 10% on conveyance, telephone and travelling expenses - HELD THAT - AO in the assessment proceedings had observed that most of the expenses claimed are not verifiable and that the personal element of expenses cannot be ruled out. Accordingly, he proceeded to estimate 10% of the expenses towards personal element and unverifiable nature and made disallowance thereon in the assessment, which was confirmed by the ld. CIT(A) in the first appeal. We find that the ld. CIT(A) had observed that assessee could not prove with any concrete evidence that there was no personal element involved. Even before us, the assessee was not able to justify the same and infact, no arguments were even advanced by the ld. AR before us with regard to said disallowance. In view of this, the ground No.3 raised by the assessee is hereby dismissed.

Summary

Issues Involved:
1. Justification of profit element restriction on alleged bogus purchases.
2. Confirmation of disallowance on estimated basis for conveyance, telephone, and traveling expenses.

Issue 1:
The first issue pertains to the justification of restricting the profit element embedded in alleged bogus purchases at 3% as opposed to 9% determined by the Assessing Officer (AO). The Appellate Tribunal considered the case of a company engaged in diamond trading, which had made purchases from entities suspected to be hawala dealers. The AO estimated the profit element at 9% based on the value of purchases, leading to an addition under section 69C of the Income Tax Act. However, the Tribunal noted that the assessee provided evidence indicating responses to the AO's notices and discrepancies in the statements recorded during search proceedings. Relying on legal precedents and considering the gross profit ratio of the assessee in earlier years, the Tribunal reduced the profit element to 1% on the value of the alleged bogus purchases, deeming it sufficient for justice.

Issue 2:
The second issue involves the confirmation of a disallowance on an estimated basis at 10% for conveyance, telephone, and traveling expenses. The AO and the Commissioner of Income Tax (Appeals) (CIT(A)) raised concerns regarding the verifiability and personal nature of these expenses, leading to the estimated disallowance. The Tribunal noted that the assessee failed to provide concrete evidence to refute the personal element in the expenses. Despite no arguments from the assessee's representative, the Tribunal upheld the disallowance, dismissing the ground raised by the assessee on this matter. Additionally, a general ground raised by the assessee was deemed not to require specific adjudication.

In conclusion, the Appellate Tribunal partially allowed the appeal, addressing the issues related to the profit element on alleged bogus purchases and the disallowance on an estimated basis for certain expenses. The Tribunal's decision was based on a thorough analysis of the facts, legal precedents, and the evidence presented during the proceedings.