2016 (3) TMI 1123 - AT - Income Tax

Bogus purchases - Held that - Undisputedly, the books of accounts of the assessee are audited as per the provisions of the law. There is also no dispute that the auditors have not qualified, the purchases made by the assessee during the year under consideration. It is also an admitted fact that no adverse inference has been drawn in so far as sales are concerned. We find that in the audit report, the auditors have mentioned that they examined purchase and sales register. We also find that the trading accounts are quantified. There is no denying that the purchases of the assessee are made from small raddiwallas therefore, it is not practically possible to have purchases supported by bills. Secondly, it is equally not possible to furnish details of such small raddiwallas . Therefore in our considered opinion, treating 15% of the total purchases as bogus purchases is unjustifiable and the action of the A.O is totally erroneous on the peculiar facts of the case in hand.There may be some room for some inflation in the purchases and the estimation of the profit by the First Appellate Authority appears to be reasonable and pragmatic. We, therefore, decline to interfere with the findings of the ld. CIT(A), all the appeals of the revenue and the assessee are accordingly dismissed.

Summary

Issues Involved:
Cross appeals by revenue and assessee against CIT(A) order for A.Y. 2006-07, 2007-08, and 2008-09 regarding profit estimation based on purchase transactions.

Analysis:
1. Identification of Identical Issues: Both sides agreed that the issues in the appeals for all years were identical, leading to a joint hearing and disposal for convenience.

2. Grievance of the Parties: The grievance revolved around the estimation of profit by the CIT(A) concerning the authenticity of purchase transactions.

3. Initial Assessment and Disallowance: The Assessing Officer (A.O) sought details of purchase transactions, and upon unsatisfactory responses, proposed a 25% disallowance due to failure in proving genuineness. Subsequently, a 15% disallowance was made, amounting to a substantial addition.

4. Assessee's Defense: The assessee provided detailed explanations, highlighting the audited nature of accounts, supported by relevant documents like purchase bills and sales invoices. The assessee's inability to provide details of small "raddiwallas" due to the nature of the business was emphasized.

5. CIT(A) Decision: The CIT(A) found the A.O's 15% disallowance unjustified, considering industry norms and profit margins. The CIT(A) directed the application of net profit rates of 2% for A.Y. 2006-07 and 2008-09, and 3% for A.Y. 2007-08, based on comparable cases.

6. Appellate Tribunal's Evaluation: The Tribunal acknowledged the audited nature of accounts, absence of adverse findings on sales, and the practical challenges in verifying purchases from small "raddiwallas." It deemed the A.O's 15% disallowance as erroneous and upheld the CIT(A)'s pragmatic profit estimation.

7. Final Judgment: The Tribunal declined to interfere with the CIT(A)'s decision, dismissing all appeals by the revenue and the assessee. The judgment emphasized the reasonableness of the profit estimation and the lack of justification for the A.O's disallowance.

This detailed analysis of the judgment highlights the progression of the case, key arguments presented, decisions made at different levels, and the final outcome by the Appellate Tribunal, ensuring a comprehensive understanding of the legal issues involved.