In a recent ruling, the Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ) upheld the 12.5% addition on alleged bogus purchases due to verification failures in disputed purchases and labour expenses.
This is a cross-appeal in which both the department and the assessee have appealed against the order of the Commissioner of Income Tax ( Appeals ) [ CIT( A) ] passed under Section 250 of the Income Tax Act, 1961 for the assessment year ( AY ) 2021-22.
The assessee, Accost Media LLP, has been engaged in the trade of painting and advertisements like wall painting, digital wall painting, board advertising, etc.
During the assessment processing, the assessee was required by the assessing officer to submit details regarding purchase and labour charges. The assessee, as a result, submitted several documents, such as ledger details, bills, vouchers by vendors/service providers, and GST returns of vendor transactions through banking channels.
Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here
In order to verify the genuineness of the transactions, the AO issued notices to 28 parties under Section 133(6) of the Income Tax Act, 1961. During verification, the addresses on bills and vouchers were found incorrect, with no business activities at the stated locations.
The AO noted suspicious accommodation entries to adjust unaccounted income and disallowed expenditure of Rs. 17.31 crore under Sections 69C and 115BBE of the Income Tax Act, 1961.
During the appeal, the CIT( A ) treated the transactions as a purchase of the assessee, and by following the judicial precedents, it held that only 12.5% of the impugned purchases was to be considered and restricted the disallowance to 12.5%, which is Rs. 2.16 crore, and deleted the rest of the addition.
The counsel on behalf of the assessee contended that only 9 out of the 28 parties have not filed their income tax returns ( ITR ).
Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here
The departmental representative ( DR ) contended that the suppliers from which the assessee made purchases were either non-filers or had filed non-business ITR (ITR 1 & 2), or reflected a substantially lower turnover in ITRs as compared to turnover in the GSTR 1 return.
The Ld. AO conducted a detailed inquiry, including issuing notices and involving the Verification unit. However, the identity and creditworthiness of the parties to the transactions remained unverified, with discrepancies such as the non-filing of ITRs by 9 out of 28 parties.
The bench observed that CIT ( A ), relying on the Bombay High Court judgement in PCIT-19 v. Ashwin P Bajaj, considered the purchases bogus and limited the addition to 12.5% of the alleged bogus purchases, amounting to Rs. 2,16,42,907. As the AO provided adequate opportunities for the assessee to present evidence, the bench found no error in the CIT( A )’s decision.
The Mumbai ITAT, comprising Narendra Kumar Billaiya ( Accountant Member ) and Ankesh Banerjee ( Judicial Member ) upheld the impugned order and dismissed the appeals of both the assessee and revenue.
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