2023 (4) TMI 577 - AT - Income Tax

Tribunal upholds Commissioner's decision dismissing Revenue's appeal, emphasizes proof of transactions

The Appellate Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) and dismissed the Revenue's appeal. The Tribunal found the assessee ... Estimation of income - bogus purchases - HELD THAT:- Assessee has failed to prove the genuineness of the purchases made from these entities. Revenue has not doubted the sales declared by the assessee. Further, it cannot be doubted that without the purchase of material, the manufacturing activity of the assessee’s concern cannot be carried out. Therefore, it appears to be a case of bogus bills arranged from the aforesaid entity and material purchased from somewhere else at a lower cost. Entire bogus purchases cannot be added in such a case. We are of the considered view that a reasonable disallowance of the purchases would meet the possibility of revenue leakage - no infirmity in the addition of 12.5% of disputed purchases as sustained by the learned CIT(A). We find that the same is also in line with the judgment of the Hon’ble jurisdictional High Court in PCIT vs Paramshakti Distributors Ltd. [2019 (7) TMI 838 - BOMBAY HIGH COURT] - Appeal by the Revenue is dismissed. Issues Involved:The judgment involves the issue of restricting the addition on account of bogus purchases to 12.5% as opposed to the 25% addition made by the Assessing Officer.Issue 1:The Revenue challenged the order passed by the Commissioner of Income Tax (Appeals) regarding the addition of bogus purchases.The brief facts of the case reveal that the assessee, engaged in the business of manufacturing transformer bushing parts, filed a return of income for the assessment year 2010-11. Subsequently, proceedings were initiated under section 147 of the Income Tax Act based on information suggesting inflated purchases through hawala parties. Despite issuing notices and requesting documentary evidence, the assessee failed to substantiate the genuineness of the purchases. The Assessing Officer treated the purchase transactions as bogus and added Rs.5,55,248, being 25% of the non-genuine purchases.Issue 2:The learned Commissioner of Income Tax (Appeals) granted partial relief to the assessee and restricted the addition to 12.5% of bogus purchases.In the impugned order, the CIT(A) considered the investigations by Sales Tax Authorities, where parties involved were found to provide accommodation entries without supplying goods. The CIT(A) noted that the appellant failed to fully discharge the onus of proving the genuineness of the purchases. Despite presenting documentation, the surrounding circumstances raised doubts on the authenticity of the purchases. The CIT(A) referred to precedents and held that a profit margin of 12.5% on bogus purchases was reasonable, thereby partially allowing the appeal.Conclusion:The Appellate Tribunal upheld the decision of the CIT(A) and dismissed the appeal by the Revenue. The Tribunal found that the assessee failed to adequately prove the genuineness of the purchases, while not doubting the declared sales. Considering the circumstances, a reasonable disallowance of 12.5% of disputed purchases was deemed appropriate to prevent revenue leakage. The Tribunal's decision was in line with relevant case law, leading to the dismissal of the Revenue's grounds of appeal.