2023 (6) TMI 929 - AT - Income Tax

ITAT Pune: Partial Success in Disallowance Case

Serum Institute of India Ltd. Versus DCIT, Central Circle-1 (1), Pune

The Appellate Tribunal ITAT PUNE partially allowed the appeal in a case concerning the disallowance of purchases amounting to Rs. 43,47,750 as 'Bogus ... Estimation of income - Bogus purchases - amount already surrendered by the assessee - HELD THAT:- Assessee against the amount of bogus purchases, unutilized surrender was adjusted by the AO towards the addition, meaning thereby that the addition to that extent got confirmed and adjusted against the amount already surrendered by the assessee, leaving the net amount of disallowance. The amount of set off represents 85% of the amount of bogus purchases. AR submitted that the assessee had profit margin of 22.83%. Addition confirmed and adjusted at 85% of the bogus purchases is far in excess of the gross profit margin on such accommodation entries. This proves that the amount of addition sustained is not called for. The same is directed to be deleted. This ground is allowed. Issues involved:The judgment involves the issue of disallowance of purchases amounting to Rs. 43,47,750 as 'Bogus purchases' u/s 10, in relation to the assessment year 2009-10.Issue 1: Disallowance of purchases as 'Bogus purchases'The Assessing Officer received information from the Sales Tax Department regarding parties declared as Hawala operators, from whom the assessee had taken accommodation entries totaling to Rs. 43,47,750. The AO added this amount as non-business expenditure due to lack of details provided by the assessee to prove the genuineness of the transactions. The CIT(A) upheld this disallowance. The Tribunal noted that the purchases were recorded in the books of account but could not be substantiated for genuineness. Referring to legal precedents, the Tribunal held that only the profit element in bogus purchases should be added, not the full amount. The Tribunal found the addition of Rs. 6,60,106 to be excessive, as it exceeded the gross profit margin on such entries. Therefore, the disallowance was directed to be deleted, and the appeal was partly allowed.This judgment by the Appellate Tribunal ITAT PUNE addressed the issue of disallowance of purchases as 'Bogus purchases' u/s 10 for the assessment year 2009-10. The Tribunal considered legal precedents and the genuineness of transactions to determine the appropriate addition in such cases, ultimately directing the deletion of the excessive disallowance amount.