2023 (11) TMI 1191 - AT - Income Tax

Estimation of income - bogus purchases - CIT(A) has restricted the addition to the extent of 25% of the bogus purchases - revenue has filed appeal before the ITAT Pune which was dismissed because of low tax effect - HELD THAT - After perusal of the material on record we find that before the CIT(A) assessee has produced copy of purchase register, sale register, ledger purchase invoices stock movement, copy of bank statement etc. to prove the genuineness of the purchases. It is also noticed that assessing officer has not doubted the corresponding sales made by the assessee. If such purchases are treated as non-genuine then the corresponding sales should also be considered as non-genuine. Therefore, we consider that in such types of transaction only the profit margin embedded in such transaction could be taxed. In such type of cases the assessee procures the material from the grey market by paying cost and as the bills are not available for such transaction, obtains bills from third party who after receipt of cheque from the assessee making him available the cash after deducting its commission. Since the sales were not doubted therefore it was proved that assessee was actually in possession of goods. The assessee has been benefitted by receiving margin of grey market. We consider that the addition to the extent of profit element embedded in the amount of purchases made from the said party is to be added. We consider it fair and reasonable to restrict the disallowance in the case of the assessee to the extent of 4% of the impugned purchases made by the assessee from the said party. Accordingly, the appeal of the assessee is partly allowed.

Issues involved:
The issues involved in this case are:
1. Allegation of bogus purchases based on third-party investigation by Sales Tax Department without further inquiries.
2. Failure to consider MVAT payments made by the assessee in relation to the impugned transactions.
3. Allegation of bogus purchases solely based on third-party statement without cross-examination opportunity.
4. Violation of principles of natural justice in creating and upholding additions without providing relevant documents.
5. Disallowance of purchases without doubting sales and subsequent transactions.
6. Disagreement with the disallowance percentage and ignoring relevant judicial precedents.
7. Delay in filing the appeal and request for condonation due to valid reasons.

Details of the Judgment:

1. The appeal was filed against an order passed by the CIT(A)-2, Thane, for A.Y. 2011-12, regarding alleged bogus purchases. The assessing officer added 100% of the purchases as bogus based on information from the Sales Tax Department.
2. The delay in filing the appeal was condoned due to valid reasons provided by the assessee related to health issues in the family.
3. The CIT(A) restricted the disallowance to 25% of the bogus purchases after considering various documents submitted by the assessee.
4. The revenue's appeal to ITAT Pune was dismissed due to low tax effect as per CBDT circular.
5. During the appeal proceedings, the assessee highlighted the lack of receipt of appeal orders due to business closure, and submitted relevant documents to substantiate genuine purchases.
6. The ITAT considered the evidence provided by the assessee, including purchase registers and bank statements, and noted that the assessing officer did not doubt corresponding sales. The ITAT concluded that only the profit margin embedded in the transactions should be taxed.
7. After analyzing the facts and findings, the ITAT decided to restrict the disallowance to 4% of the impugned purchases, partly allowing the appeal.

Conclusion:
The ITAT Mumbai partially allowed the appeal, considering the evidence presented by the assessee and restricting the disallowance to the profit element embedded in the purchases. The judgment highlighted the importance of substantiating transactions and considering all aspects before making additions to the income.

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