ITAT Mumbai: Partial relief granted in appeal on alleged bogus purchases

The ITAT Mumbai partially allowed the assessee's appeal and dismissed the Revenue's appeal on August 24, 2021. The ITAT upheld the AO's gross profit estimation on alleged bogus purchases but reduced the quantum of such purchases based on a VAT Audit Report. It estimated a suppressed profit margin of 5% on the reduced amount. The assessee's request for deletion of the entire addition was not granted, but a partial relief was provided by the ITAT.

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Issues:
Cross appeals by the assessee and the Revenue against the order of Commissioner of Income Tax (Appeals)-26 Mumbai for the Assessment Year 2009-10.

Analysis:
The assessee, engaged in manufacturing and trading of dyes and chemicals, had its assessment re-opened due to allegedly obtaining bogus purchase bills. The Assessing Officer estimated Gross Profit (GP) at 12.5% on the alleged hawala purchases, adding Rs. 19,03,878 to the income. The assessee submitted documentary evidence to prove the genuineness of purchases, including ledger accounts and bank statements. The CIT(A) modified the assessment based on a VAT Audit Report, reducing the bogus purchases to Rs. 76,78,960 but retained the ad hoc GP addition at 12.5%.

The assessee argued that its declared GP was higher than the industry average, and based on the evidence provided, requested the deletion of the entire addition. Alternatively, the assessee proposed the addition be limited to the difference between the GP estimated by the AO and the GP declared by the assessee, citing a Tribunal decision in a similar case.

The Department, represented by Sh. Sanjay J. Sethi, contended that the VAT Audit Report was not presented to the AO and emphasized that the parties from whom the unapproved purchases were made were declared hawala operators. The Department argued that the assessee failed to prove the genuineness of the dealers and purchases, urging for the restoration of the original addition made by the AO.

The ITAT Mumbai observed that the assessee did not discharge its onus in proving the genuineness of the suspicious dealers and purchases. While upholding the AO's GP estimation on bogus purchases, the ITAT reduced the quantum of bogus purchases to Rs. 76,78,960 based on the VAT Audit Report. Considering the facts and the modus operandi of the bogus purchase transactions, the ITAT estimated a suppressed profit margin of 5% on the reduced amount. Consequently, the appeal of the assessee was partly allowed, and the Revenue's appeal was dismissed.

In conclusion, the ITAT Mumbai delivered the judgment, partly allowing the assessee's appeal and dismissing the Revenue's appeal on August 24, 2021.

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