2017 (9) TMI 1401 - AT - Income Tax

Bogus purchases - quantitative details furnished by the assessee with regard to the purchases and sales - CIT(A) for restricting the addition to the extent of 5% - Held that - As observed that when the purchases were not made from those parties, the assessee must have purchased from some other parties. Under this situation, adding entire amount of purchase to total income was not correct. After considering all vis- -vis nature of business the assessee was involved, the CIT(A) concluded that addition to the extent of 5% on such purchase will serve the purpose of justice. The CIT(A) also found that in the immediately subsequent assessment year 2011-12, AO himself added 5% of value on such purchases made from the suspected party to take care of the margin earned by the assessee indulging in such activity. Appeal of the revenue is dismissed

Summary

Issues Involved:
1. Reliance on the assessment order for A.Y. 2011-12 while deciding for A.Y. 2007-08.
2. Justification of sustaining only a 5% profit rate addition on total purchases.
3. Request to set aside the order of CIT(A) and restore the AO's order.

Issue-wise Detailed Analysis:

1. Reliance on the assessment order for A.Y. 2011-12 while deciding for A.Y. 2007-08:
The Revenue questioned whether the CIT(A) was correct in relying on the assessment order for A.Y. 2011-12 to decide the issue for A.Y. 2007-08, given that the assessee failed to produce the daily stock register for A.Y. 2007-08, making the purchases unverifiable. The Tribunal noted that the CIT(A) considered quantitative details maintained by the assessee, which were not doubted by the AO. The CIT(A) concluded that sales were genuine and it was not possible to sell goods without making purchases, indicating that purchases must have been made from some other parties if not from the ones in question.

2. Justification of sustaining only a 5% profit rate addition on total purchases:
The CIT(A) restricted the addition to 5% of the total purchases from three parties, citing that the assessee might have purchased goods from the grey market and obtained bills from entry providers to complete the trading activity. The CIT(A) referred to various judicial pronouncements and concluded that estimating the profit percentage on such purchases was the correct approach. The Tribunal upheld this view, noting that the CIT(A) found the quantitative details furnished by the assessee with regard to purchases and sales were not doubted by the AO and that the AO himself adopted a 5% addition in the subsequent assessment year 2011-12.

3. Request to set aside the order of CIT(A) and restore the AO's order:
The Revenue prayed to set aside the CIT(A)'s order and restore the AO's order, which added the entire amount of purchases as non-genuine. The Tribunal considered the CIT(A)'s detailed findings, which were not controverted by the learned DR with any positive material. The Tribunal agreed with the CIT(A)'s conclusion that adding the entire amount of purchase to the total income was not correct and that a 5% addition was appropriate, especially since the AO himself adopted this rate in the subsequent assessment year.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to restrict the addition to 5% of the total purchases, consistent with the approach taken in the subsequent assessment year. The order was pronounced in the open court on 13/09/2017.