2024 (9) TMI 645 - AT - Income Tax

Estimation of income - Bogus purchases - HELD THAT - We are of the considered view that a reasonable disallowance of the purchases would meet the possibility of revenue leakage. During the hearing, AR placed reliance upon the decision of the coordinate bench of the Tribunal in Mafatlal Harakchandji Bothra 2023 (10) TMI 1442 - ITAT MUMBAI We find from the perusal of the aforesaid decision that while deciding a similar issue in the case of a taxpayer who was engaged in a similar business, the coordinate bench restricted the addition to 5% of the non-genuine purchases. Therefore, we deem it appropriate to restrict the disallowance to 5% of the disputed purchases. We find that the same is also in line with the judgment of Paramshakti Distributors Ltd. 2019 (7) TMI 838 - BOMBAY HIGH COURT . Accordingly, ground no.2 raised in assessee s appeal is partly allowed.

Summary

Issues:
1. Validity of reassessment proceedings under section 147 of the Income Tax Act.
2. Addition of Rs. 35,86,547 on account of alleged bogus purchases made by the assessee.

Analysis:
1. The appeal challenges the validity of reassessment proceedings under section 147 of the Income Tax Act, initiated by the Assessing Officer. The appellant contends that the reassessment was based on a change of opinion and borrowed satisfaction, seeking to quash the proceedings. During the hearing, the appellant's representative chose not to press this ground, leading to its dismissal as not pressed.

2. The main issue in the appeal pertains to the addition of Rs. 35,86,547 on account of alleged bogus purchases made by the assessee. The Assessing Officer initiated reassessment proceedings based on information received from the Sales Tax Department regarding non-genuine purchases amounting to Rs. 2,86,92,372. The appellant failed to produce the parties involved in these purchases or provide supporting documents like delivery challans, transport receipts, and bank statements. Consequently, the AO made an addition of Rs. 1,36,47,218 under the peak credit theory.

3. The Commissioner of Income Tax (Appeals) upheld the addition of 12.5% of the alleged bogus purchases, amounting to Rs. 25,86,547, based on the gross profit margin embedded in such transactions. The appellant contested this decision, arguing that they were engaged in trading ferrous and non-ferrous metals with payments made via account payee cheques. However, the appellant failed to substantiate the genuineness of the purchases before the authorities or during the appeal.

4. The Tribunal considered the material on record and noted the failure of the appellant to prove the legitimacy of the purchases. Relying on precedents and the peculiar facts of the case, the Tribunal restricted the disallowance to 5% of the disputed purchases, aligning with previous decisions and the judgment of the jurisdictional High Court. Consequently, the appeal was partly allowed, reducing the addition to 5% of the disputed purchases.

5. In conclusion, the Tribunal partially allowed the appeal by the assessee, modifying the addition on account of alleged bogus purchases to 5% of the disputed amount. The decision was pronounced in open court on 10/09/2024.