Tribunal allows assessee's appeal in purchase disallowance case for AY 2010-11

The Tribunal partially allowed the grounds raised by both the assessee and the Revenue in a case involving disallowance of purchases from suspected non-existent dealers for the assessment year 2010-11. The Tribunal determined the profit element embedded in the disputed purchases by considering VAT savings and incidental profit, ultimately allowing the assessee's appeal and dismissing the Revenue's appeal.

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Issues: Disallowance of bogus purchases

Analysis:
The judgment by the Appellate Tribunal ITAT Mumbai involved cross appeals concerning the disallowance made on account of bogus purchases for the assessment year 2010-11. The only issue to be decided was the disallowance of purchases made from certain dealers suspected to be non-existent and engaged in providing accommodation bills. The assessee, a private limited company, was involved in a project named Bhoomi Mall in Navi Mumbai. The Assessing Officer observed that the purchases made from specific dealers were non-genuine based on information from the Sales Tax department. The assessee, however, provided various documents to prove the genuineness of the purchases, including ledger accounts, tax invoices, delivery challans, and bank statements. The assessee also argued that due to VAT defaulters being the suppliers, it was beyond their control to produce them before the AO. The CIT(A) considered the impact of disallowing the purchases on the gross profit rate of the business and made an addition based on the difference in the GP rate.

The Tribunal noted that the assessee had indeed made purchases from tainted suppliers, and despite affidavits filed by the suppliers claiming genuineness, the assessee failed to conclusively prove the legitimacy of the purchases. It was inferred that the purchases were likely made from the grey market to save on VAT and gain an incidental profit element. The Tribunal directed the AO to determine the profit element embedded in the disputed purchases by considering VAT savings and incidental profit. The profit element was calculated for each supplier, and the total sum to be added back was determined. Consequently, the Tribunal partly allowed the grounds raised by both the assessee and the Revenue.

In conclusion, the appeal of the assessee was allowed, and the appeal of the revenue was dismissed by the Tribunal's judgment pronounced on 16/08/2021.

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