2021 (6) TMI 848 - AT - Income Tax

Bogus purchases - HELD THAT - We find that the assessee, vide letter dated 26/09/2018 has filed confirmation of accounts from 4 parties under consideration. The ledger extracts as placed on record would reveal that the assessee has made the payment to these parties though banking channels. Going by the factual matrix, it is evident that assessee's sales turnover was not in doubt. There could be no sale without actual purchase of material keeping in view the assessee's nature of business. The facts of the case made it a fit case to estimate the profit element embedded in these transactions. Therefore, as pleaded by Ld. AR and to put an end to litigation, we estimate the additions against these purchases @8% which comes to ₹ 1,83,266/-. The balance additions stand deleted. AO is directed to recomputed assessee's income in terms of our above order.

Summary

Issues:
Appeal against additions on unproved purchases for AY 2010-11.

Analysis:
The appeal before the Appellate Tribunal ITAT Mumbai contested the order of the Ld. Commissioner of Income-Tax (Appeals)-40, Mumbai, confirming additions on account of unproved purchases made by the Ld. AO during assessment for AY 2010-11. The appellant argued that the appellate order did not consider the outcome of remand proceedings where the assessee substantiated the purchases to a great extent. The Ld. AR requested for estimation considering the factual matrix and the nature of the assessee's business. The Ld. DR, however, sought dismissal of the appeal.

The assessee, a resident firm engaged as a manufacturer of engineering goods, was assessed for the relevant year under section 143(3). During assessment, notices were issued to seven parties to verify purchases, but most notices were returned. The assessee could only produce two suppliers, claiming genuine purchases with payments through banking channels. The Ld. AO, however, made an aggregate addition of ?22.90 Lacs concerning four entities. Despite the appeal to the Ld. CIT(A), the additions were confirmed ex-parte against the assessee. The Tribunal noted that the CIT(A) did not consider the outcome of remand proceedings, prompting the assessee to appeal further.

Upon review of the material, the Tribunal found that the assessee submitted confirmation of accounts from four parties, along with ledger extracts showing payments through banking channels. Given the nature of the assessee's business and the necessity of purchases for sales turnover, the Tribunal estimated the profit element in the transactions at 8%, resulting in an addition of ?1,83,266. The remaining additions were deleted, and the Ld. AO was directed to recomputed the assessee's income accordingly. The appeal was partly allowed, with the order pronounced on 15th June 2021.