2021 (12) TMI 202 - AT - Income Tax

Tribunal Partially Upholds Disallowance Decision: Importance of Genuine Purchases Proof

The Tribunal partially allowed the appeal, upholding the Assessing Officer's decision to disallow 12.5% of non-genuine purchases made by the assessee. The ... Estimation of income - Bogus purchases - HELD THAT:- The assessee may not have been able to prove the genuineness of purchases from the declared source, however, it is a fact on record that the Assessing Officer has not disputed the sales effected by the assessee. Therefore, it goes to prove that the assessee must have purchased goods from some other undisclosed source. In such circumstances, it is the settled legal position that the entire purchases cannot be disallowed, but only the profit element embedded in such purchases can be considered for addition. Therefore, keeping in view the decisions of the Tribunal in identical nature of cases, the decision of the Assessing Officer to restrict the disallowance to 12.5% of the non–genuine purchase is fair and reasonable requiring no interference from this forum. Accordingly, we set aside the impugned order passed by the learned CIT(A) and uphold the order of the Assessing Officer.Issue is decided in favour of the assessee. Issues Involved:1. Re-opening of assessment under section 147 of the Income Tax Act.2. Disallowance of alleged bogus purchases.3. Enhancement of total income by disallowing 100% of alleged bogus purchases.4. Non-application of the decision of the Hon’ble Bombay High Court in the case of Mohd. Haji Adam & Co.Issue-wise Detailed Analysis:1. Re-opening of assessment under section 147 of the Income Tax Act:The assessee challenged the re-opening of the assessment under section 147, arguing that it was initiated solely based on information from the DGIT (Inv.), Mumbai, without any application of mind by the Assessing Officer (AO). The AO’s decision was based on suspicion and surmises without any tangible material indicating an escapement of income. The Tribunal, however, did not adjudicate this issue as it became academic in nature after the second issue was decided in favor of the assessee.2. Disallowance of alleged bogus purchases:The assessee, engaged in trading bearings, declared purchases worth Rs. 4,70,89,512 from 35 dealers, which were later flagged as bogus by the Sales Tax authorities. The AO, unsatisfied with the evidences provided by the assessee, disallowed 12.5% of the total purchases, amounting to Rs. 58,86,189. The AO’s decision was based on the inability of the assessee to produce delivery challans, transport receipts, and other vital documents, leading to the conclusion that these purchases were merely accommodation entries to inflate expenses.3. Enhancement of total income by disallowing 100% of alleged bogus purchases:The learned CIT(A) enhanced the disallowance to 100% of the alleged bogus purchases, amounting to Rs. 4,70,89,512. The CIT(A) reasoned that the assessee failed to substantiate the purchases with adequate proof such as delivery challans, transport receipts, and confirmation from suppliers. The CIT(A) cited various legal precedents, including the Hon’ble High Court of Bombay and ITAT Pune, which upheld the disallowance of 100% in similar cases of bogus purchases. The CIT(A) also emphasized that the onus of proving the genuineness of purchases lies with the assessee, which was not discharged.4. Non-application of the decision of the Hon’ble Bombay High Court in the case of Mohd. Haji Adam & Co.:The assessee argued that the CIT(A) failed to apply the decision of the Hon’ble Bombay High Court in the case of Mohd. Haji Adam & Co., which held that the addition should be restricted to the gross profit rate of other genuine purchases. The Tribunal, considering the submissions, found that while the assessee could not prove the genuineness of purchases from the declared source, the AO did not dispute the sales. This indicated that the assessee must have purchased goods from undisclosed sources. Consequently, the Tribunal upheld the AO’s decision to restrict the disallowance to 12.5% of the non-genuine purchases, finding it fair and reasonable.Conclusion:The Tribunal set aside the order of the learned CIT(A) and upheld the AO’s decision to disallow 12.5% of the non-genuine purchases. The appeal was allowed partly, with the second issue decided in favor of the assessee, and the first issue regarding the re-opening of assessment under section 147 remained unadjudicated due to its academic nature.