2021 (10) TMI 261 - AT - Income Tax

Estimation of income - Bogus purchases - HELD THAT - Simply because the parties were not produced the entire purchases cannot be added as held by the Bombay High Court in the case of CIT v. Nikunj Eximp 2013 (1) TMI 88 - BOMBAY HIGH COURT . However, at the same time keeping in view the nature of business of the assessee and the fact that the assessee is making some local purchases without any transportation bills, lorry receipts etc, the possibility of making purchases in gray market on cash cannot be ruled out. Thus following the decision of the Hon'ble Gujarat High Court in the case of CIT v. Simit P. Seth 2013 (10) TMI 1028 - GUJARAT HIGH COURT I direct the Assessing Officer to restrict the disallowance/addition to 12.5% of the bogus purchases. - Decided partly in favour of assessee.

Summary

Issues:
1. Addition of non-genuine purchases made by the assessee.
2. Validity of treating all purchases as non-genuine due to lack of production of parties.
3. Determination of the quantum of disallowance/addition to be made on non-genuine purchases.

Detailed Analysis:
Issue 1: The appeal was filed against the order confirming the addition made by the Assessing Officer regarding non-genuine purchases by the assessee. The Assessing Officer reopened the assessment based on information received about accommodation entries provided by dealers, including the assessee. Despite the assessee's submission of ledger accounts and payment proofs, the Assessing Officer treated the purchases as non-genuine, leading to the addition of a specific amount to the assessee's income.

Issue 2: The Assessing Officer's decision to treat all purchases as non-genuine due to the non-production of parties was challenged. The Hon'ble Tribunal noted that while the parties were not produced, the sales from these purchases were accepted as genuine. Citing precedents from the Hon'ble Gujarat High Court and the Bombay High Court, the Tribunal emphasized that not the entire amount covered under such purchases should be subject to tax, but only the profit element. Therefore, the Tribunal directed the Assessing Officer to restrict the disallowance/addition to 12.5% of the bogus purchases, considering the nature of the assessee's business and the possibility of gray market purchases.

Issue 3: The Tribunal partially allowed the appeal, directing the Assessing Officer to restrict the disallowance of purchases to 12.5% for the relevant assessment year. By following the decision of the Hon'ble Gujarat High Court, the Tribunal determined the quantum of disallowance/addition to be made on the non-genuine purchases, emphasizing the need to consider the totality of facts and circumstances while computing the income.

In conclusion, the Tribunal's judgment addressed the issues related to the addition of non-genuine purchases, the validity of treating all purchases as non-genuine, and the determination of the quantum of disallowance/addition to be made. The decision provided a balanced approach by considering legal precedents and the specific circumstances of the case to arrive at a fair resolution, ultimately partially allowing the assessee's appeal.