2021 (10) TMI 2 - AT - Income Tax

Estimation of income - Bogus purchases - information received from Sales-tax department through the Investigation Wing - HELD THAT - As in course of assessment proceedings, though, the assessee furnished some documentary evidences, however, they were not to the satisfaction of the Assessing Officer. Therefore, he treated the purchases as non genuine. However, ultimately, he restricted the disallowance to 16% being the gross profit shown by the assessee. Assessing Officer was convinced that not only assessee had purchased the goods, but corresponding sales have been made. As find, while dealing with identical nature of dispute in assessee s own case in assessment year 2010-11, the Tribunal 2020 (5) TMI 695 - ITAT MUMBAI has restricted the disallowance to 3% of the alleged non genuine purchases. The factual position relating to the disallowance made in the impugned assessment year is identical. - Thus restrict the disallowance to 3% of the alleged non genuine purchases - Decided partly in favour of assessee.

Summary

Issues: Disallowance of non genuine purchases

Analysis:
The appeal by the revenue was against the order of the Commissioner of Income-tax (Appeals) for the assessment year 2011-12, specifically challenging the disallowance made on account of non genuine purchases. The assessing officer, based on information regarding hawala transactions, reopened the assessment and called upon the assessee to prove the genuineness of purchases amounting to ?28,95,516 from two parties. Despite the assessee's submissions and evidence, including banking channel payments and maintained books of accounts, the Assessing Officer concluded that the purchases were non genuine. Consequently, a disallowance of 16% of the alleged non genuine purchases, amounting to ?4,63,286, was made and upheld by the Commissioner (Appeals).

The counsel for the assessee argued that purchases were made from genuine sources, with payments through banking channels, and sales were only to government agencies, establishing a correlation between purchases and sales. Referring to a previous Tribunal order limiting disallowance to 3% for purchases from the same parties in the assessment year 2010-11, the counsel requested a similar restriction for the current assessment year. On the other hand, the Departmental Representative supported the disallowance, emphasizing the lack of cogent evidence from the assessee to prove the genuineness of purchases.

Upon review of the submissions and evidence, it was noted that while the Assessing Officer found certain purchases to be non genuine based on information received, the evidence provided by the assessee was not satisfactory. However, considering the previous Tribunal decision limiting disallowance to 3% for similar purchases, the ITAT directed the assessing officer to restrict the disallowance to 3% of the alleged non genuine purchases for the current assessment year. The decision was based on the factual similarity with the previous case and the need for consistency in treatment. As a result, the appeal was partly allowed, and the disallowance was reduced accordingly.

In conclusion, the judgment addressed the issue of disallowance of non genuine purchases, emphasizing the importance of providing satisfactory evidence to prove the genuineness of transactions. The decision also highlighted the significance of consistency in treatment of similar cases, as evidenced by the reference to a previous Tribunal order.