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of <h1>ITAT Mumbai rules on disallowance of purchases from suspicious dealers, sets profit margin to resolve appeal</h1> The ITAT Mumbai addressed cross appeals involving disallowance of purchases from suspicious dealers. The assessee argued purchases were supported by ... Estimation of income - Bogus purchases - CIT-A restricted addition being 12. 5% of the purchases made from the said suspicious dealers - HELD THAT:- As decided in own case [2020 (6) TMI 718 - ITAT MUMBAI]we direct the AO to restrict the estimation of profit to 8% of the disputed purchases. Issues:1. Disallowance on account of purchases from alleged suspicious dealers.2. Disallowance of profit margin on purchases.3. Allowance of expenses claimed on purchases.4. Failure to substantiate purchase transactions.5. Discrepancies in payment to suppliers.6. Application of profit margin on disputed purchases.7. Comparison with previous judgments on similar issues.Issue 1: Disallowance on account of purchases from alleged suspicious dealers:The ITAT Mumbai dealt with cross appeals involving disallowance of purchases from suspicious dealers. The assessee contested the disallowance, arguing that purchases were supported by stock records and sales details. The Revenue questioned the CIT(A)'s decision, citing a Supreme Court ruling on bogus purchases. The AO disallowed a significant amount due to lack of payment evidence and discrepancies in subsequent years. The CIT(A) upheld part of the disallowance, differing on the percentage. The ITAT, considering similar cases, directed a profit margin of 8% on disputed purchases, distinguishing this case from the Supreme Court precedent.Issue 2: Disallowance of profit margin on purchases:The AO disallowed a portion of purchases due to lack of payment evidence and inconsistencies in subsequent years. The CIT(A) confirmed part of this disallowance but varied the percentage. The ITAT, based on previous judgments and considering the nature of transactions, directed a profit margin of 8% on the disputed purchases, emphasizing the need for a reasonable estimate. This decision aimed to balance the interests of the assessee and uphold tax compliance standards.Issue 3: Allowance of expenses claimed on purchases:The Revenue challenged the allowance of expenses on purchases from a specific party, highlighting the absence of payment details in subsequent years. The ITAT considered the onus on the assessee to substantiate transactions, emphasizing the need for genuine and documented purchase transactions. The decision reflected a cautious approach to expenses claimed without proper supporting evidence, maintaining the integrity of tax assessments.Issue 4: Failure to substantiate purchase transactions:The AO raised concerns regarding the genuineness of purchase transactions, especially due to the lack of payment evidence and responses from suppliers. The ITAT emphasized the importance of providing concrete evidence to support transactions, highlighting the need for transparency and compliance with tax regulations. The decision underscored the significance of substantiating claims to avoid disallowances and ensure accurate assessments.Issue 5: Discrepancies in payment to suppliers:The AO noted discrepancies in payments to suppliers, particularly the absence of payments to a specific party in subsequent years. This raised suspicions regarding the authenticity of transactions and led to disallowances. The ITAT's decision aimed to address these discrepancies by directing a profit margin on disputed purchases, aligning with the need for clarity and consistency in financial transactions.Issue 6: Application of profit margin on disputed purchases:The ITAT opted to apply a profit margin of 8% on disputed purchases, considering the specifics of the case and previous judgments. This decision sought to strike a balance between the interests of the assessee and tax compliance requirements, ensuring a fair and reasonable approach to estimating profits on contentious transactions. The judgment reflected a nuanced understanding of the complexities involved in assessing purchase transactions and profit margins.Issue 7: Comparison with previous judgments on similar issues:The ITAT referenced previous judgments in similar cases to guide its decision-making process. By aligning with consistent rulings and legal principles, the tribunal ensured coherence and fairness in its judgments. Drawing parallels with past cases helped establish a framework for addressing contentious issues and provided a basis for determining appropriate profit margins on disputed purchases. The ITAT's reliance on precedent underscored the importance of legal consistency and precedent in tax assessments.
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