2013 (6) TMI 257 - HC - Income Tax

Bogus Purchase - amount to be added in the income - held that - being one of only purchase but not from disclosed sources, it would be only the profit element embodied in such purchase which could be added in the income of the assessee and, thus, rightly so done by the Commissioner (Appeals) and the Tribunal. The only question arises whether such profit element should be estimated at the rate of 30 per cent. or 12.5 per cent. Whenever such a question arises, some reasonable estimation is always permissible. Hardly any question of law on such aspect would arise. Merely, it is pointed out that the assessee was a trader and that the Tribunal retained 12.5 percent of the purchase towards its possible profit, we do not find any reason to entertain the appeal. - Decided against the revenue.

Issues:
1. Disallowance of bogus purchase in income tax assessment.
2. Assessment of profit element in purchases made from undisclosed sources.
3. Estimation of profit element at 30% or 12.5% in income tax assessment.

Issue 1: Disallowance of Bogus Purchase in Income Tax Assessment:
The case involved a dispute regarding the disallowance of purchases worth Rs. 61.40 lakhs by the respondent-assessee, which were found to be unsupported by sufficient evidence during reassessment proceedings for the assessment year 2003-04. The Assessing Officer added the entire amount of purchase as the parties from whom the goods were claimed to be purchased were found to be non-existent. However, the Commissioner of Income-tax (Appeals) partially allowed the appeal, considering that there was a quantitative tally of material purchased and sold, indicating purchases from the open market with cash payments. The Commissioner added only the profit element, resulting in a limited addition of 30% of the total amount. The Tribunal further reduced this addition to Rs. 18.42 lakhs and dismissed the Revenue's appeal.

Issue 2: Assessment of Profit Element in Purchases Made from Undisclosed Sources:
Both the Commissioner (Appeals) and the Tribunal observed that the purchases made by the assessee were not from disclosed sources but from the grey market through cash payments, with some entries obtained from suppliers who had not actually sold the goods. The case revolved around the inclusion of the profit element in such purchases in the assessee's income. The Commissioner (Appeals) and the Tribunal rightly concluded that only the profit element should be added to the income, considering the nature of the purchases made by the assessee.

Issue 3: Estimation of Profit Element at 30% or 12.5% in Income Tax Assessment:
The final question was whether the profit element should be estimated at 30% or 12.5% of the purchase amount. The Tribunal decided to restrict the addition to 12.5% as a reasonable estimation of the profit element, given that the assessee was a trader. The High Court upheld the Tribunal's decision, emphasizing that such estimations are permissible and not a point of law. As the Tribunal's decision was reasonable and in line with the nature of the case, the tax appeal was dismissed.

In conclusion, the judgment addressed the issues of disallowance of bogus purchases, assessment of profit element in purchases from undisclosed sources, and the estimation of the profit element in income tax assessment. The decision highlighted the importance of considering the nature of purchases and making reasonable estimations in such cases, ultimately upholding the Tribunal's verdict in favor of the assessee.

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