When sales accepted as genuine, entire purchases cannot be treated as bogus and added – ITAT

When sales accepted as genuine, entire purchases cannot be treated as bogus and added to the income but the profit element – ITAT

ABCAUS Case Law Citation:
ABCAUS 2411 (2018) 07 ITAT

The instant appeal was filed by the assessee against the order of the CIT(A) in

The only issue in the appeal was in respect of confirming the disallowance of purchases treating them as non-genuine by the Assessing Officer.

The Assessing Officer received information from DGIT (Inv.) and the Sales Tax Department wherein the list of hawala dealers who indulged in providing accommodation entries for issuing bogus sales bills, tax invoices etc., were provided.

Based on this list Assessing Officer treated the assessee as one of the beneficiaries to such transactions and the purchases made from two parties was treated as non-genuine as the assessee could not file the details about these purchases.

The assessee did not file the explanations / information’s in respect of these purchases in spite of the opportunities given by the Assessing Officer and therefore the assessment was completed u/s. 144 r.w.s. 147 of the Income Tax Act

Assessee preferred appeal before the CIT(A) even before the CIT(A) in spite of service of notice on the assessee no body attended on behalf of the assessee and therefore the CIT(A) sustained the disallowance.

Before the Tribunal the assessee submitted that addition was made based only on the information received from Sales Tax Department that some of the dealers were providing accommodation entries, in assessee’s case the purchases were genuine. It was submitted that sales had been accepted as genuine and therefore entire purchases could not be disallowed as non-genuine. Therefore, it was pleaded that a reasonable profit element may be estimated from the purchases.

The Tribunal observed that it was not in dispute that sales had been accepted as genuine from out of these purchases. Therefore when the sales have been accepted as genuine the entire purchases cannot be treated as non genuine.

It was observed that the Hon’ble Gujarat High Court had held that when the assessee made purchases and sold the finished goods as a natural corollary not the entire amount covered under such purchases would be subject to tax but only the profit element embedded therein. Similar view had been taken by the Hon’ble Gujarat High Court in another case.

Ur was further observed that as held by the Bombay High Court, simply because the parties were not produced the entire purchases cannot be added.

Following the decisions of the Hon’ble Gujarat High Court, the ITAT directed the Assessing Officer to restrict the disallowance to 12.5% of the purchases treated as non-genuine by estimating profit element in such bogus purchases.

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