2019 (12) TMI 202 - AT - Income Tax

Tribunal upholds restriction on non-genuine purchases, addresses revenue leakage with profit element.

The Tribunal upheld the Commissioner (Appeals)' decision to restrict additions to 12.5% of non-genuine purchases in each assessment year, considering the ... Addition on account of non–genuine purchases - HELD THAT:- There is no dispute to the fact that the assessee was unable to prove with conclusive evidence, the source of the disputed purchases made from certain parties. However, it is evident from the order of Commissioner (Appeals), during the appeal proceedings the assessee had furnished quantitative details of purchases and sales with sample copies of bills to establish the nexus between the purchases and corresponding sales. The aforesaid facts establish that the assessee certainly had purchased the goods, though, may not be from the declared source. This leads to the logical conclusion that the assessee might have purchased the goods from some other sources to avoid payment of Sales Tax / VAT, thereby, generating extra profit not disclosed to the Department and to regularize such purchases has obtained the accommodation bills. Entire purchase cannot be treated as income of the assessee, but, the profit element embedded therein can be considered for addition - nature of business carried on by the assessee, in our view, the decision of learned Commissioner (Appeals) in restricting the addition to 12.5% of the non–genuine purchases is good enough to take care of leakage of revenue on account of suppression of profit. The aforesaid decision of learned Commissioner (Appeals) is also in consonance with the view expressed by the higher judicial authorities including the Tribunal in similar nature of cases. Issues:- Dispute over partial relief granted by the Commissioner (Appeals) regarding non-genuine purchases.Analysis:The judgment by the Appellate Tribunal ITAT Mumbai involved appeals by the Revenue against a common order issued by the Commissioner of Income Tax (Appeals) concerning the assessment years 2009-10, 2010-11, and 2011-12. The main issue in dispute across these appeals was the partial relief granted by the Commissioner (Appeals) regarding additions made on account of non-genuine purchases. The assessee, engaged in the trading of iron and steel, faced challenges when the Assessing Officer re-opened assessments under section 147 of the Income-tax Act due to suspicions of accommodation bills issued by certain parties. The Assessing Officer rejected the Books of Account, treating the purchases as non-genuine and adding them back to the assessee's income for the respective assessment years. The additions made in different years were specified. The assessee appealed these additions before the first appellate authority, resulting in the Commissioner (Appeals) restricting the addition to 12.5% of the non-genuine purchases in each assessment year.During the appeal hearing, the assessee did not appear, leading to an ex-parte disposal of the appeal. The Departmental Representative argued that the purchases were not genuine as the assessee failed to prove the delivery of goods or maintain a stock register. The notices issued under section 133(6) were returned unserved, hindering the verification process. Despite the lack of conclusive evidence on the source of purchases, the Commissioner (Appeals) noted that the assessee provided quantitative details and sample bills to establish a connection between purchases and sales. This indicated that while the purchases may not be from declared sources, the goods were indeed bought, possibly to evade taxes and generate undisclosed profits. The Tribunal agreed with the Commissioner (Appeals) that while the entire purchase amount cannot be treated as income, the profit element could be considered for addition to address revenue leakage. The Tribunal upheld the decision of the Commissioner (Appeals) based on the specific circumstances of the case and the nature of the business, dismissing the Revenue's appeals in line with judicial precedents and differing factual contexts from previous cases. The judgment was pronounced on 25.10.2019.