2016 (9) TMI 1589 - AT - Income Tax

Estimation of income - bogus purchases - CIT-A confirmed the addition to the extent of 25% - HELD THAT - In different trade items, there may be different rate of profit. Whenever any profit is being estimated, the element of guesswork would always be involved. In the case Simit P. Sheth 2013 (10) TMI 1028 - GUJARAT HIGH COURT on an analysis of the material, Tribunal drew an inference that in the trade of steel profit at the rate of 12.5% may be reasonable profit when the assessee has procured material from different sources and bills from different sources. This formation of opinion was not disturbed by the Hon ble High Court. Therefore, we find force in the contentions of the ld.counsel for the assessee that this decision is a guiding factor for estimating element of profit involved in the activity of the assessee. We allow the appeal of the assessee partly, and modify the order of the ld.CIT(A). Additions confirmed by the ld.CIT(A) at the rate of 25% of the total bogus purchases is restricted to 12.50% - Decided partly in favour of assessee.

Summary

Issues:
1. Disputed purchases treated as bogus by AO
2. Addition to income based on disputed purchases
3. Disagreement on the percentage of profit involved in bogus purchases
4. Comparison with a similar case from Hon'ble Gujarat High Court
5. Estimation of reasonable profit percentage in the trade of steel

Analysis:
The judgment involves an appeal against the order of the ld.CIT(A)-V, Baroda regarding disputed purchases treated as bogus by the Assessing Officer (AO). The AO added the value of the purchases to the income of the assessee as they could not be proven. The ld.CIT(A) concurred with the AO but confirmed the addition to the extent of 25% based on the assumption of profit involved in the bogus purchases. The counsel for the assessee cited a judgment from the Hon'ble Gujarat High Court in a similar case, arguing for a lower percentage of addition. The ld.DR, on the other hand, contended that the entire purchase cost should be added due to the possibility of long-term fraudulent activities by the assessee.

Upon consideration, the Tribunal noted that while the credential of the supplier was not proven, the sales made by the assessee were not disputed. The Tribunal referenced the judgment in the case of CIT Vs. Simit P. Sheth, where a profit percentage was estimated in a similar modus operandi. The Tribunal agreed with the counsel for the assessee that the decision was a guiding factor in estimating the profit involved. The Tribunal partially allowed the appeal, modifying the ld.CIT(A)'s order by restricting the additions to 12.50% of the total bogus purchases, citing the reasonable profit percentage in the trade of steel as per the previous judgment.

The Tribunal's decision highlighted the importance of estimating profits in such cases, acknowledging the element of guesswork involved. By relying on precedents and considering the nature of the trade, the Tribunal adjusted the addition percentage to reflect a more reasonable profit margin. The appeal of the assessee was partly allowed, with the ld.AO directed to adjust the income computation accordingly post the Tribunal's order.

In conclusion, the judgment provides a detailed analysis of the issues related to disputed purchases, addition to income, disagreement on profit percentage, comparison with a previous judgment, and the estimation of a reasonable profit percentage in the trade of steel. The decision showcases the application of legal principles and precedents to arrive at a fair and just outcome in tax matters.