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ITAT reduces bogus purchase addition from 12.5% to 6.5% considering assessee's gross profit margins The ITAT Mumbai reduced the addition for bogus purchases from 12.5% to 6.5% of the purchase value. The CIT(A) had sustained the 12.5% addition but failed ...
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ITAT reduces bogus purchase addition from 12.5% to 6.5% considering assessee's gross profit margins
The ITAT Mumbai reduced the addition for bogus purchases from 12.5% to 6.5% of the purchase value. The CIT(A) had sustained the 12.5% addition but failed to consider the assessee's submission regarding gross profit margins from earlier and subsequent assessment years. The Tribunal noted that in a similar case involving the assessee's brother, a coordinate bench had sustained disallowance at 6.5%. Given the assessee's declared gross profit of 5.76%, the Tribunal held that 6.5% disallowance would be sufficient to prevent revenue leakage. The assessee's appeal was partly allowed with the disallowance restricted to 6.5%.
Issues: 1. Validity of re-opening assessment under section 147 of the Income Tax Act. 2. Sustaining the addition of 12.5% on account of non-genuine purchases.
Issue 1: Validity of re-opening assessment under section 147 of the Income Tax Act: The appeal challenged the order of the Commissioner of Income-tax (Appeals) confirming the Assessing Officer's decision to reopen the assessment under section 147 of the Act. The appellant contended that the re-opening was erroneous. The Tribunal noted that the appellant did not press any arguments against this ground, leading to its dismissal.
Issue 2: Sustaining the addition of 12.5% on account of non-genuine purchases: The case involved the appellant, a trader in Ferrous and Non-Ferrous Metals, who declared a total income for Assessment Year 2009-10. The assessment was re-opened based on information from the Investigation Department, suspecting non-genuine purchases. The Assessing Officer added 12.5% to the alleged non-genuine purchases as a profit element. The Commissioner of Income-tax (Appeals) upheld this decision. The appellant argued that all purchases were genuine, supported by evidence. The Departmental Representative claimed the purchases were accommodation bills to inflate expenses. The Tribunal observed that the Assessing Officer did not discuss the documentary evidence provided by the appellant regarding purchases and sales. In a similar case involving the appellant's brother, a 6.5% addition was sustained. Considering this precedent and the appellant's declared Gross Profit margin, the Tribunal directed the Assessing Officer to restrict the disallowance to 6.5%.
In conclusion, the Tribunal partly allowed the appeal, restricting the disallowance on account of bogus purchases to 6.5%.
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