2019 (7) TMI 659 - AT - Income Tax

Tribunal limits disallowance to 5% of purchase amount, partially allows assessee's appeal.

The Tribunal directed the Assessing Officer to restrict the disallowance to 5% of the impugned purchase amount, following precedents and considering the ... Unexplained purchases - purchases from grey market - search & seizure operation u/s 132 - genuineness of transactions - accommodation entry - HELD THAT:- As decided in M/S. MANSAROVAR INFRATECH PVT. LTD. VERSUS ASSTT. CIT [2019 (4) TMI 1722 - ITAT DELHI], we directed the Assessing Officer to restrict the disallowance to the tune of 5% of the impugned purchases wherein the same party M/s Meet Enterprises was involved. . Respectfully following the aforesaid precedents, we direct the Assessing Officer to restrict the disallowance to 5% of the impugned purchase - decided in favour of assessee Issues Involved:1. Confirmation of addition of Rs. 37,14,973/- on account of alleged unexplained purchases.2. Jurisdiction of the Assessing Officer (AO) under Section 153A of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Confirmation of addition of Rs. 37,14,973/- on account of alleged unexplained purchases:The brief facts of the case are that a search and seizure operation under Section 132 of the Income Tax Act, 1961 was conducted on 19.10.2011 on the premises of the assessee. The group cases were centralized to Central Circle, Ghaziabad, and the jurisdiction order under Section 127 of the Income Tax Act, 1961 was passed on 16.09.2013. Subsequently, notice under Section 153A was issued on 30.09.2013. The assessee filed a return of income on 13.12.2013 declaring total income of Rs. 3,65,12,490/-. The assessee is engaged in the business of real estate development and related activities. During the year, the assessee purchased steel from M/s Meet Enterprises for Rs. 37,14,973/-. The AO issued a show cause notice to explain the genuineness of the transaction with Meet Enterprises. The AO observed that the assessee failed to furnish confirmation from Meet Enterprises, and the Trade Tax Department found that M/s Meet Enterprises was a non-existent firm. Therefore, the AO treated the expenditure as unexplained and unverifiable, disallowing the purchase amount and adding it to the income of the assessee. The CIT(A) upheld the action of the AO and dismissed the appeal of the assessee.At the time of hearing, the Ld. Counsel for the assessee argued that the legal issue is covered in favor of the Assessee by the decision of the Hon’ble High Court of Delhi in the case of CIT vs. Kabul Chawla (2015) 61 Taxman.com 412 (Delhi). On the merits, he requested the Tribunal to restrict the disallowance to 5% of the impugned purchases, as directed by the ITAT, Delhi ‘E’ Bench in a similar case involving M/s Meet Enterprises. The Ld. DR opposed the application of the Kabul Chawla case and supported the disallowance, relying on several case laws.The Tribunal noted that in a similar case involving M/s Meet Enterprises, the ITAT, Delhi ‘E’ Bench directed the AO to restrict the disallowance to 5% of the impugned purchases. The Tribunal observed that the assessee had declared sales and purchases, maintained audited books of accounts, and the purchases were accepted in the sales tax order. The Tribunal opined that the entire amount should not be disallowed but restricted to the profit margin embedded in such purchases. The Tribunal followed the precedents set by the Gujarat High Court and other cases, directing the AO to restrict the disallowance to 5% of the impugned purchase of Rs. 37,14,973/-.2. Jurisdiction of the Assessing Officer (AO) under Section 153A of the Income Tax Act, 1961:The assessee contended that the addition made by the AO is beyond the scope/jurisdiction of the provisions of Section 153A of the Income Tax Act, 1961. However, since the Tribunal decided the appeal on the merits of the case by restricting the disallowance to 5% of the impugned purchases, it did not adjudicate the legal issue regarding the jurisdiction of the AO under Section 153A.Conclusion:The Tribunal directed the AO to restrict the disallowance to 5% of the impugned purchase of Rs. 37,14,973/-, following the precedents and considering the facts and circumstances of the case. The appeal of the assessee was partly allowed.Order pronounced on this 09th day of July, 2019.