2021 (6) TMI 834 - AT - Income Tax

Tribunal confirms 15% disallowance of unverifiable purchases under Income Tax Act

M/s G.B. Impex Versus The ITO, Ward-6 (3), Jaipur.

The Tribunal upheld the rejection of the books of accounts under Section 145(3) of the Income Tax Act and confirmed the disallowance of 15% of alleged ... Rejection of books of accounts u/s 145(3) - GP estimation - bogus purchases - trading addition by disallowing 15% of the alleged unverifiable purchases made from 12 parties - HELD THAT:- CIT(A) has affirmed the rejection of books of accounts on account of non-genuine purchases which could not be verified during the course of assessment proceedings relying on the decision in case of Vimal Singhvi [2014 (12) TMI 66 - RAJASTHAN HIGH COURT]. No infirmity in the said findings of the ld CIT(A) and the same is hereby confirmed. Regarding disallowance of 25% of the alleged purchases, the ld CIT(A) has followed the Coordinate Bench decision in assessee’s own case for A.Y 2008-09 and has restricted the disallowance to 15% of alleged purchases. It is also noted from the assessee’s assessment history, for instance, A.Y 2010-11, where under similar facts and circumstances of the case, disallowance of 15% of unverifiable purchases were made by the CIT(A) which has been affirmed by the Coordinate Bench and similar disallowances have been made in other years - we donot see any infirmity in the findings of the ld CIT(A) in restricting the addition to 15% of unverified purchases. Appeal of the assessee is dismissed. Issues Involved:1. Rejection of books of accounts under Section 145(3) of the Income Tax Act, 1961.2. Disallowance of 15% of alleged unverifiable purchases amounting to Rs. 58,57,118/-.Issue-wise Detailed Analysis:1. Rejection of Books of Accounts under Section 145(3):The assessee, engaged in the trading and export of gemstones and diamonds, declared a gross profit rate of 4.38% for the assessment year 2007-08. The Assessing Officer (AO) observed that certain parties, from whom purchases were made, admitted to issuing bogus bills and not engaging in actual business activities. The AO noted that the onus to prove the genuineness of purchases lies on the assessee, which failed to produce these parties for verification. Summons issued to these parties were either returned undelivered or responded to with written submissions instead of personal appearances. Consequently, the AO rejected the books of accounts under Section 145(3) and made a trading addition by disallowing 25% of the purchases from these parties.On appeal, the CIT(A) upheld the rejection of books of accounts, relying on the Rajasthan High Court decision in *Vimal Singhvi vs. ACIT* and *Venus Arts & Gems vs. ITO*. The Tribunal affirmed the CIT(A)'s decision, noting no infirmity in the findings, and confirmed the rejection of the books of accounts due to non-genuine purchases.2. Disallowance of 15% of Alleged Unverifiable Purchases:The AO initially disallowed 25% of the alleged unverifiable purchases amounting to Rs. 3,90,47,452/-, resulting in an addition of Rs. 97,61,863/-. The CIT(A), referencing the assessee’s own case for AY 2008-09, restricted the disallowance to 15% of the unverifiable purchases. The assessee argued that it maintained complete books of account, supported by bills and vouchers, and provided quantitative details in the tax audit report. It was contended that purchases linked to sales should not be treated as bogus, as demonstrated by a gross profit rate of 4.80% from these purchases, which was higher than the overall rate of 4.38%.The CIT(A) acknowledged the assessee's submission but maintained the 15% disallowance based on past decisions and consistent views taken by the Tribunal in similar cases. The Tribunal upheld the CIT(A)'s decision, noting that the disallowance of 15% of unverifiable purchases was reasonable and consistent with the assessee’s assessment history, including AY 2010-11, where similar disallowances were affirmed by the Tribunal.Conclusion:The Tribunal dismissed the assessee's appeal, confirming the rejection of books of accounts under Section 145(3) and the disallowance of 15% of the alleged unverifiable purchases. The Tribunal found no infirmity in the CIT(A)'s findings and upheld the partial relief granted by restricting the disallowance to 15% of the unverifiable purchases.Order Pronounced:The order was pronounced in the open Court on 01/04/2021.