2021 (9) TMI 629 - AT - Income Tax

Estimation of income - bogus purchases - Purchases from grey market - assessee has obtained bogus purchase bills from suspicious dealer identified by the Sales Tax Department, Government of Maharashtra - HELD THAT - The income declared by the assessee from contract work has not been disputed by the Revenue. The assessee is a work contractor. Without material the assessee could not have completed the contract job. Ostensibly, the assessee has procured the material for performing contract job either from grey market or any other sources. Thereafter, the assessee obtained bogus purchases bills from hawala operator. As in M/S. PARAMSHAKTI DISTRIBUTORS PVT. LTD. 2019 (7) TMI 838 - BOMBAY HIGH COURT upheld the proposition that it is only the profit element embedded in the bogus purchases that has to be brought to tax. Estimation of disallowance at 30% by the CIT(A) is very much on the higher side. Considering entirety of facts, estimation of GP @12% of bogus purchases would meet the ends of justice - Appeal by assessee is partly allowed.

Summary

Issues:
Assessment of bogus purchases and disallowance for assessment year 2011-12.

Analysis:
The appeal pertains to the assessment year 2011-12 where the assessee, a civil contractor, declared a total income of ?19,38,660. The case was selected for scrutiny due to information received regarding accommodation entries from a specific dealer. Despite notices and requests for relevant documents to prove the genuineness of purchases, the assessee failed to provide satisfactory evidence. The Assessing Officer made an addition for entire bogus purchases based on the lack of substantiating documents (para 2).

The CIT(A) considered the nature of the assessee's work in government contracts and concluded that the materials must have been utilized, suggesting that the assessee procured materials from elsewhere and obtained bills from a hawala dealer. The CIT(A) restricted the disallowance in respect of bogus purchases to 30%, which the assessee contested in the appeal before the Tribunal (para 2).

During the appeal, the assessee's representative argued that the addition made by the CIT(A) was on the higher side, considering the net profit declared by the assessee in the previous financial year. The Departmental Representative, on the other hand, highlighted the lack of evidence provided by the assessee to prove the genuineness of purchases (para 3-4).

The Tribunal observed that the income declared by the assessee from contract work was not disputed, indicating that the assessee must have procured materials from sources other than the suspicious dealer. Referring to a relevant High Court case, the Tribunal held that only the profit element embedded in the bogus purchases should be taxed. Considering the facts, the Tribunal estimated the disallowance at 12% of the bogus purchases, differing from the CIT(A)'s decision, and partially allowed the appeal (para 5-6).