2024 (2) TMI 112 - AT - Income Tax

Estimation of income - bogus purchases - AO restricted the disallowance to 12.5% and 10% for the assessment years 2009-10 and 2010-11, respectively - claim of the assessee that all the payments were made by account payee cheque - HELD THAT - We find that before the lower authorities, the assessee was neither able to produce the parties nor could furnish the documents as directed by the AO. Even before us, no such details are available on record. Therefore, it is evident that the assessee has failed to prove the genuineness of the purchases made from the supplier, also evident from the record that the Revenue has not doubted the usage of materials for construction contract work undertaken by the assessee. It cannot be doubted that without the purchase of material, the assessee cannot carry out the construction work. Therefore, it appears to be a case of bogus bills arranged from the aforesaid entities and materials purchased from somewhere else at a lower cost. Thus, we deem it appropriate to restrict the disallowance to 8% of the disputed purchases in both assessment years. We find that the same is also in line with the judgment of Paramshakti Distributors Ltd. 2019 (7) TMI 838 - BOMBAY HIGH COURT . Decided partly in favour of assessee.

Summary

Issues involved:
The judgment involves challenges to impugned orders under section 250 of the Income Tax Act, 1961 for assessment years 2009-10 and 2010-11, related to disallowance of suspicious purchases made by the assessee.

Assessment Year 2009-10:
The assessee, a partnership firm in the construction business, filed returns declaring income, which were processed under section 143(1) of the Act. Subsequently, based on information received about the assessee's involvement in accommodation entries, proceedings under section 147 were initiated. The Assessing Officer disallowed 12.5% of alleged bogus purchases, which the CIT(A) upheld. The Tribunal found the assessee failed to prove the genuineness of purchases but restricted the disallowance to 8% of disputed purchases, considering the necessity of materials for construction work. The decision was in line with a relevant High Court judgment.

Assessment Year 2010-11:
Similar to the previous year, the assessee's returns were processed under section 143(1) and subsequent proceedings were initiated under section 147 due to suspicions of bogus purchases. The AO disallowed 10% of alleged bogus purchases, a decision upheld by the CIT(A). The Tribunal, noting the necessity of materials for construction work, restricted the disallowance to 8% of disputed purchases, aligning with a relevant High Court judgment.

Conclusion:
The Tribunal partly allowed the appeals in both assessment years, reducing the disallowance percentage for suspicious purchases from the initially determined amounts. The decision was based on the failure of the assessee to substantiate the purchases' genuineness but also considering the essentiality of materials for the construction business. The Tribunal's decision aimed to prevent revenue leakage while acknowledging the legitimate need for materials in the assessee's line of work.