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

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 unverifiable purchases. The Tribunal found no error in the CIT(A)'s decision and maintained the partial relief by limiting the disallowance to 15% of the unverifiable purchases. The appeal by the assessee was dismissed, and the order was pronounced on 01/04/2021.

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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.

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