ITAT Mumbai: Income Estimation at 3% for Alleged Purchases in Reopened Assessments

The ITAT Mumbai dealt with appeals against the Ld. CIT(A)'s order for AY 2010-11 and 2011-12, where the assessment was reopened due to information on bogus purchases. Despite non-appearance of assessees, the hearing proceeded ex-parte. The ITAT directed income estimation at 3% of alleged purchases, differing from the 12.5% addition by the AO and Ld. CIT(A). The appeals were partly allowed, emphasizing the need for reasonable income estimation based on trading activities and margins. Orders were pronounced on 25.01.2021.

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Issues:
1. Ex-parte hearing due to non-appearance of assessees.
2. Reopening of assessment based on information from sales tax department.
3. Addition made on account of non-genuine purchases.
4. Appeal before Ld. CIT(A) and subsequent appeal before ITAT.
5. Comparison of declared GP ratio with estimation made by AO and Ld. CIT(A).

Analysis:
1. The Appellate Tribunal, ITAT Mumbai, dealt with two appeals filed by related parties against the order of Ld. Commissioner of Income Tax (Appeals) for AY 2010-11 and 2011-12. Despite no appearance by the assessees, the hearing proceeded ex-parte with the assistance of the Ld. DR.

2. The assessment was reopened under section 147 of the Act based on information received from the sales tax department regarding bogus purchases. The total income was determined after making an addition of 12.5% on account of non-genuine purchases.

3. The Ld. CIT(A) sustained the addition made by the AO, leading to the assessees filing appeals before the ITAT. The Tribunal referred to a previous case where additions were restricted to 3% of alleged bogus purchases, considering various factors such as turnover, payment methods, and lack of confirmation from suppliers.

4. The ITAT noted that the assessees had declared a GP ratio of around 2% on their purchases, while the addition made by the AO and upheld by Ld. CIT(A) was at 12.5%. Relying on precedents and industry standards, the ITAT directed the AO to estimate income at 3% of the alleged purchases, leading to the partial allowance of the appeals.

5. Given the similarity in facts, another appeal for AY 2010-11 was also partly allowed by the ITAT, emphasizing the need for a reasonable estimation of income based on trading activities and declared margins. The appeals were partly allowed, and the orders were pronounced on 25.01.2021.

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