2021 (1) TMI 685 - AT - Income Tax

Tribunal upholds 30% addition on disputed purchases, rejects 100% disallowance. CIT(A) decision affirmed.

ITO-21 (3) (1), Mumbai Versus Ramesh B Musale

The Tribunal upheld the CIT(A)'s decision to sustain a 30% addition on disputed purchases from Goodluck Impex and Suraj Steel, rejecting the AO's proposed ... Estimation of income - Bogus purchases - CIT(A) upholding only 30% addition - HELD THAT:- The assessee had filed all relevant details like copies of bills, bank statements and delivery challans. Having considered the above, we are of the considered view that the Ld. CIT(A) has rightly brought to tax the profit element embedded in such disputed purchases by estimating @ 30%. In the case of CIT vs. Simit P. Sheth [2013 (10) TMI 1028 - GUJARAT HIGH COURT] has held that where purchases were not bogus but were made from parties other than those mentioned in the books of account, not entire purchase price but only profit element embedded in such purchases can be added to income of the assessee. That being the position, not the entire purchase price but only the profit element embedded in such purchases can be added to the income of the assessee. - Decided against revenue. Issues:1. Disallowance of bogus purchases - 30% addition upheld by CIT(A) against AO's stand of 100% disallowance.2. Non-appearance of assessee before the Tribunal leading to disposal of the appeal based on available records.3. Reopening of assessment by AO based on information from Sales Tax Department regarding bogus purchases.4. AO's addition of Rs. 2,66,147 due to non-compliance by assessee in producing parties for verification.5. Ld. CIT(A) decision sustaining 30% addition on disputed purchases from Goodluck Impex and Suraj Steel.6. Legal precedent cited by Ld. CIT(A) regarding adding only profit element in disputed purchases.1. Disallowance of Bogus Purchases:The appeal involved a dispute over the disallowance of bogus purchases, with the AO proposing 100% disallowance, while the CIT(A) upheld a 30% addition. The Ld. CIT(A) reasoned that without verifying transactions due to non-availability of parties and lack of cooperation from the assessee, a blanket 100% addition was not warranted. Instead, the profit element embedded in such transactions should be added. The decision was supported by legal precedents emphasizing adding only the profit element in disputed purchases.2. Non-Appearance of Assessee:Despite the case being scheduled for a hearing, neither the assessee nor their representative appeared before the Tribunal. Consequently, the Tribunal proceeded to dispose of the appeal based on available records and the arguments presented by the Departmental Representative.3. Reopening of Assessment:The AO reopened the assessment for the relevant year based on information from the Sales Tax Department indicating bogus purchases by the assessee from two parties. Despite attempts to verify these transactions, including issuing notices that were returned unserved, the assessee failed to produce the concerned parties for examination.4. Addition by AO:Due to the non-compliance of the assessee in producing the parties for verification, the AO made an addition of Rs. 2,66,147 representing the disputed purchases. This decision was challenged by the assessee leading to the appeal before the CIT(A).5. Decision of CIT(A):The CIT(A) sustained a 30% addition on the disputed purchases from Goodluck Impex and Suraj Steel. The Ld. CIT(A) emphasized that the profit element embedded in such transactions should be taxed, considering the non-cooperation of the assessee in verifying the transactions.6. Legal Precedent:The decision of the CIT(A) was supported by legal precedents, including a case law where it was established that in cases of disputed purchases, only the profit element should be added to the income of the assessee. The Tribunal affirmed the CIT(A)'s order based on the factual scenario and the legal position, ultimately dismissing the appeal.This comprehensive analysis covers the various issues addressed in the judgment, detailing the arguments, decisions, and legal principles applied throughout the appellate process.