2021 (3) TMI 787 - AT - Income Tax

ITAT Mumbai upholds CIT(A)'s decision on alleged bogus purchases, emphasizing evidence

The ITAT Mumbai dismissed the Revenue's appeal regarding alleged bogus purchases from M/s Hiten Enterprises, as the CIT(A) found the appellant ... Genuineness of purchase transactions - verification of supplier's statements by assessing officer - addition based on estimated profit on alleged bogus purchases - deletion of additions where assessing officer fails to make inquiries - correlation of purchases with allocation of raw materials and sales as evidence of genuinenessGenuineness of purchase transactions - verification of supplier's statements by assessing officer - deletion of additions where assessing officer fails to make inquiries - Deletion of addition made on account of alleged bogus purchases from M/s Hiten Enterprises. - HELD THAT: - The Tribunal examined the assessment record and the statement of Shri Hiten Parekh (proprietor of M/s Hiten Enterprises) recorded before the AO, in which Parekh stated that genuine business was conducted with the assessee and that entries relating to certain wrong transactions were attributable to third parties operating in his name. The AO made an addition by estimating profit on the disputed purchases but did not undertake any further inquiries or investigations to dislodge the supplier's statement. The assessee was also able to correlate the purchases with allocation of raw material and subsequent sale of finished goods. In these circumstances the Tribunal concluded that the AO failed to rebut the evidence of genuineness available on record and that the learned CIT(A) was justified in deleting the addition relating to purchases from Hiten Enterprises. [Paras 4, 5]The deletion of the addition in respect of purchases from M/s Hiten Enterprises is affirmed.Addition based on estimated profit on alleged bogus purchases - correlation of purchases with allocation of raw materials and sales as evidence of genuineness - Restriction of disallowance to the addition sustained in respect of purchases from Raj Traders. - HELD THAT: - The learned CIT(A) accepted the assessee's evidence in respect of Hiten Enterprises but did not disturb the addition conceded to relate to purchases from Raj Traders. The AO's overall estimated disallowance was adjusted accordingly by the CIT(A). The Tribunal found this approach to be based on the facts and circumstances on record and on the CIT(A)'s assessment of the evidence. [Paras 4, 5]The disallowance is restricted to the amount attributable to purchases from Raj Traders; the remainder of the AO's addition is deleted.Final Conclusion: The appeal filed by the Revenue is dismissed; the Tribunal affirms the CIT(A)'s deletion of the addition relating to Hiten Enterprises and the restriction of disallowance to the purchases from Raj Traders for AY 2009-10. Issues:- Addition of alleged bogus purchases from M/s Hiten Enterprises- Failure to substantiate the genuineness of purchase transactions- Non-production of parties by the assessee as requested by the AO- Purchases made from unrecorded parties and accommodation bills obtained from hawala parties- Tax effect below monetary limit but based on information from external sourcesAnalysis:1. Alleged Bogus Purchases from M/s Hiten Enterprises:- The Revenue appealed against the deletion of an addition of Rs. 2,36,717 made for alleged bogus purchases from M/s Hiten Enterprises.- The AO estimated profit at 12.5% of disputed purchases and made an addition of Rs. 2,40,057.- The CIT(A) found that the AO lacked evidence contradicting the genuineness of the transactions with Hiten Enterprises.- The CIT(A) noted the appellant's ability to correlate purchases with raw material allocation and sales of finished goods, leading to the deletion of the addition.2. Failure to Substantiate Purchase Transactions:- The Revenue argued that the onus was on the assessee to explain and substantiate the true nature of the purchase transaction.- The CIT(A) held that the appellant provided sufficient evidence to establish the genuineness of the purchases from Hiten Enterprises.3. Non-Production of Parties Requested by AO:- The AO mentioned that the assessee failed to produce parties as requested, specifically by the AO.- Despite this, the CIT(A) found the evidence provided by the appellant to be satisfactory in establishing the authenticity of the transactions.4. Purchases from Unrecorded Parties and Accommodation Bills:- The Revenue contended that purchases were made from unrecorded parties, with accommodation bills obtained from hawala parties.- The CIT(A) did not find merit in the addition based on presumptions and restricted it to a nominal amount, considering the evidence presented by the appellant.5. Tax Effect Below Monetary Limit:- The case had a tax effect below the monetary limit prescribed by CBDT Instruction No. 3/2018.- However, an exception applied due to the information received from external sources like Sales Tax Authorities, justifying the addition based on such information.In conclusion, the ITAT Mumbai dismissed the Revenue's appeal, affirming the CIT(A)'s order based on the evidence and circumstances of the case. The judgment highlighted the importance of substantiating transactions, providing satisfactory evidence, and conducting thorough inquiries before making additions based on presumptions.