2020 (11) TMI 904 - AT - Income Tax

ITAT affirms CIT(A) decision on 5% disallowance for non-genuine purchases, dismissing revenue's appeal.

ACIT – 19 (3), Mumbai Versus M/s. Rishab Steel House, Mumbai

The ITAT upheld the CIT(A)'s decision, restricting the disallowance to 5% of the purchases made from M/s. Navratan Impex, dismissing the revenue's appeal. ... Estimation of income - Bogus purchases - disallowance of 12.5% of purchases as non-genuine/bogus - CIT-A restricting addition to 5% of purchases - HELD THAT:- CIT(A) followed the order of the Tribunal in assessee’s own case for the earlier as well as subsequent assessment years on identical issue and decided partly in favour of the assessee by directing the AO to estimate the profit element in alleged non-genuine purchases at 5%, facts being similar, we do not find any infirmity in the order passed by the Ld.CIT(A) in restricting the addition to 5% of the value of purchases made. Grounds raised by the revenue are dismissed. Issues Involved:1. Legitimacy of the purchases made by the assessee from M/s. Navratan Impex.2. Appropriate percentage of disallowance for non-genuine/bogus purchases.Detailed Analysis:1. Legitimacy of the Purchases:The primary issue revolves around the legitimacy of purchases made by the assessee, who is engaged in the trading of steel, from M/s. Navratan Impex. The Assessing Officer (AO) received information from the Directorate General of Income Tax (Investigation), Mumbai, indicating that the assessee was a beneficiary of accommodation entries provided by various dealers, including M/s. Navratan Impex. The AO reopened the assessment under Section 147 of the Income Tax Act based on this information, suspecting that the purchases were non-genuine and lacked actual transportation of goods.During reassessment proceedings, the assessee was required to substantiate the genuineness of these purchases. The assessee presented the Profit and Loss Account, details of purchase parties, and argued that payments were made through account payee cheques, asserting the genuineness of the purchases. However, the assessee failed to produce the parties before the AO and provided no satisfactory explanation. Consequently, the AO deemed the purchases as non-genuine, suspecting that the assessee might have made purchases in the gray market, and added 12.5% of the alleged bogus purchases amounting to Rs. 17,75,518 to the income of the assessee.2. Appropriate Percentage of Disallowance:On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] considered the evidences and submissions provided by the assessee and restricted the disallowance to 5% of the non-genuine purchases. The CIT(A) referenced an earlier decision by the Income Tax Appellate Tribunal (ITAT) in the assessee’s own case for previous assessment years (2009-10, 2010-11, 2011-12, and 2006-07), where the ITAT directed the AO to estimate the profit at 5% for similar non-genuine purchases.The ITAT in the earlier case had noted that while the purchases were regarded as bogus by the AO, the sales made by the assessee were not disputed. It was inferred that the assessee might have made purchases from the gray market, thereby saving on taxes like sales tax and possibly getting the goods at a lower rate. The ITAT had directed the AO to restrict the addition to 5% of such purchases, considering the entirety of the facts and circumstances.In the current case, the CIT(A) followed this precedent and directed the AO to restrict the addition to 5% of the purchases made from M/s. Navratan Impex. The ITAT, upon reviewing the submissions and the orders of the authorities below, found no infirmity in the CIT(A)’s decision to restrict the addition to 5%, as it was consistent with the earlier decisions in the assessee’s own case.Conclusion:The ITAT upheld the CIT(A)’s order, which restricted the disallowance to 5% of the value of purchases made from M/s. Navratan Impex, dismissing the revenue's appeal. The decision was pronounced on 25.11.2020, affirming that the CIT(A) had appropriately followed the precedent set by the ITAT in the assessee’s earlier cases.