2022 (5) TMI 1687 - AT - Income Tax

Assessee's grey-market purchases deemed tax-evasive; income was estimated by disallowing 12.5% embedded profit from purchases

Ashok Popatbhai Chaudhari, Versus Income Tax Officer -17 (1) (2), Mumbai

ITAT, MUMBAI held that the assessee made purchases from the grey market, thereby obtaining savings attributable to non-payment of tax and related ... Bogus purchase - Estimation of income - HELD THAT:- In the present case the facts of the case indicate that assessee has made purchase from the grey market. Making purchases through the grey market gives the assessee savings on account of non-payment of tax and others at the expenses of the exchequer. As regards the quantification of the profit element embedded in making of such bogus/unsubstantiated purchases by the assessee, we find that 12.5% disallowance should serve the end of justice. Assessment year 2010-11: reassessment based on Sales Tax Department information alleging bogus purchases of Rs. 56,085. Assessee produced purchase vouchers and bank payments but failed to produce suppliers; no other corroborative evidence. Sales were not doubted. Assessing Officer and first appellate authority sustained a 100% addition as bogus purchases. Tribunal notes presence of documentary evidence but adverse inference from non-production of suppliers and lack of supporting materials. Applying settled law that when 'sales are not doubted, 100% disallowance for bogus purchase cannot be done,' and considering jurisdictional High Court precedent (Nikunj Eximp Enterprises) which upheld 100% disallowance in distinct facts, Tribunal distinguishes the present case: purchases appear from the grey market, yielding tax savings to the assessee at the exchequer's expense. For quantification, Tribunal deems a 12.5% disallowance appropriate to reflect the profit element embedded in such unsubstantiated purchases. Appeal is partly allowed.