2020 (12) TMI 1398 - AT - Income Tax

Estimation of income - bogus purchases - confirmation of addition to the tune of 12.5% by CIT(A) - whether the GP rate applied by Ld. CIT(A) is reasonable or not? - HELD THAT - We are of the view that in the case of a ferrous and non ferrous items the profit is very meager ranging from 2% to 4 % and GP rate as directed by the Ld. CIT(A) appears to be excessive and unreasonable. The co-ordinate benches of the Tribunal have been taking a consistent view that in such type of cases having trade of ferrous and non ferrous steel items the profit GP can not exceed 3 to 4%. Though the Ld. CIT(A) has correctly followed the decision in the case of CIT vs. Simit P. Sheth 2013 (10) TMI 1028 - GUJARAT HIGH COURT however the rate applied is on the higher side. We are therefore of the view that it would be reasonable if the GP rate @ 5% is applied on the said bogus purchases to bring the additional income on bogus purchases to tax which the assessee may have made by purchasing the goods from grey market. Accordingly we direct the AO to apply a GP of 4% and the order of Ld. CIT(A) is modified to that extent. The appeal of the assessee is partly allowed.

Summary

Issues involved: Cross appeals by the assessee and the Revenue against the order of the Commissioner of Income Tax (Appeals) regarding the confirmation of addition to the tune of 12.5% of the bogus purchases.

Summary:
1. The assessee, a dealer in ferrous and non-ferrous metal items, filed a return of income for the assessment year 2011-12. The Assessing Officer (AO) noted bogus purchases made by the assessee from 21 parties. Despite providing bills, vouchers, and other documents, the AO was not convinced and made an addition on a peak basis under section 69C of the Act.

2. In the appellate proceedings, the CIT(A) applied a GP rate of 12.5% on the bogus purchases, partly allowing the appeal of the assessee. Both the assessee and the Revenue appealed against this decision.

3. The ITAT observed that the GP rate applied by the CIT(A) was excessive and unreasonable for a dealer in ferrous and non-ferrous items. Considering the profit margins in such trades, a GP rate of 5% was deemed reasonable. The ITAT modified the CIT(A)'s order, directing the AO to apply a GP of 4% on the bogus purchases. The appeal of the assessee was partly allowed.

4. As a result of partly allowing the assessee's appeal, the cross appeal by the Revenue was dismissed as infructuous.

In conclusion, the appeal of the assessee was partly allowed, and the appeal of the Revenue was dismissed.