2021 (2) TMI 418 - AT - Income Tax

Tribunal affirms Commissioner's decision on disallowed purchases, citing lack of evidence

The Tribunal upheld the Commissioner's decision to limit the addition to 12.5% in a case involving disallowance of non-genuine purchases made by the ... Non-genuine purchases - estimation of undisclosed income by applying profit rate - burden of proof on the assessee to prove genuineness of purchases - reliance on information received from Sales Tax Department / DGIT(Inv.) - reopening of assessment under section 147 - use of notices under section 133(6) for verificationNon-genuine purchases - burden of proof on the assessee to prove genuineness of purchases - estimation of undisclosed income by applying profit rate - reliance on information received from Sales Tax Department / DGIT(Inv.) - Disallowance by estimating profit on alleged non-genuine purchases and the correctness of restricting the addition to 12.5% by the Commissioner (Appeals). - HELD THAT: - The Assessing Officer reopened the assessments on receipt of information from the Sales Tax Department identifying certain selling dealers as hawala operators and treated specified purchases as non-genuine. The assessee was called upon to produce delivery challans, transportation bills, purchase bills and goods received notes but did not furnish the required documents in entirety; notices issued under section 133(6) to the selling dealers were returned unserved. Given the failure of the assessee to conclusively prove that purchases were from declared/verifiable sources, the Assessing Officer estimated the profit embedded in such purchases at 25%. The Commissioner (Appeals) reduced the addition to 12.5% having regard to the nature of the assessee's trading business and the practice in similar cases. The Tribunal, on review of the material and reasoning, found no infirmity in the appellate authority's exercise of discretion in moderating the estimated profit rate to 12.5%, and held that the assessee's inability to substantiate the source justified an addition based on a reasonable estimation of profit but not at the higher rate applied by the Assessing Officer. [Paras 5]Additions estimated by the Assessing Officer at 25% are modified and the Commissioner (Appeals) order restricting the addition to 12.5% is upheld; Revenue's appeals dismissed.Final Conclusion: On the facts and material received from the Sales Tax Department and the assessee's failure to produce verifying documents, the Tribunal upheld the Commissioner (Appeals)'s reduction of the estimated addition to 12.5% of the alleged non-genuine purchases for the assessment years 2009-10, 2010-11 and 2011-12 and dismissed the Revenue appeals. Issues:Challenge to common order by Revenue for assessment years 2009-10, 2010-11, and 2011-12. Disallowance of non-genuine purchases.Analysis:The appeals were filed by the Revenue challenging a common order passed by the Commissioner of Income Tax (Appeals) for the mentioned assessment years. The main dispute in all appeals pertained to the disallowance of non-genuine purchases made by the assessee. The assessee, engaged in trading, filed returns of income for the respective years. The Assessing Officer reopened assessments based on information from the Sales Tax Department indicating non-genuine purchases. The AO asked the assessee to prove the genuineness of these purchases, but the evidence provided was deemed unsatisfactory. Consequently, the AO treated the purchases as non-genuine and estimated profits at 25%, leading to additions in the assessments. The assessee contested these additions before the Commissioner (Appeals), who reduced the additions to 12.5%.Upon review, the Tribunal noted specific information from the Sales Tax Department identifying selling dealers as hawala operators, casting doubt on the genuineness of the purchases. The assessee failed to provide complete documentary evidence to support the purchases, and notices to selling dealers went unserved. While the assessee had corresponding sales, the source of purchases remained questionable. The AO estimated profit on non-genuine purchases at 25%, later reduced to 12.5% by the Commissioner (Appeals). The Tribunal found no issue with this decision, as the assessee likely sourced goods from unverified or grey market channels, impacting the true profit. Considering the business nature and profit rates in similar cases, the Tribunal upheld the Commissioner's decision to limit the addition to 12.5%.In conclusion, the Tribunal dismissed all grounds raised in the appeals, affirming the Commissioner's decision. The appeals were consequently dismissed, and the order was pronounced on 28/01/2021.