2017 (10) TMI 730 - HC - Income Tax

Disallowance on the bogus purchases - NP determination - Held that - Facts on record would show that certain purchase of the assessee would found to be bogus, upon which, the Assessing Officer made addition on the entire amount. Commissioner of Income Tax (Appeals) restricted the addition by adopting the net profit rate of 2% on the basis that in similar trade in the region, the profit rate worked out is 0.5% to 0.75%. The assessee has disclosed profit ratio of 1.10%. The Commissioner of Income Tax (Appeals) increased it to 2%. This view of the Commissioner of Income Tax (Appeals) was confirmed by the Tribunal. No substantial question of law.

Summary

Issues:
Appeal against the judgment of the Income Tax Appellate Tribunal regarding the restriction of NP @ 2% on certain bogus purchases.

Analysis:
The judgment delivered by the Gujarat High Court pertains to an appeal filed by the Revenue against the decision of the Income Tax Appellate Tribunal. The primary issue raised in the appeal was whether the Tribunal erred in restricting the Net Profit (NP) to 2% in a case where certain purchases were found to be bogus. The Tribunal had based its decision on the fact that in a similar trade in the region, the profit rate ranged from 0.5% to 0.75%. The assessee had disclosed a profit ratio of 1.10%, which was increased to 2% by the Commissioner of Income Tax (Appeals). This increase was subsequently confirmed by the Tribunal.

Upon reviewing the facts on record, the Court noted that the Assessing Officer had made an addition on the entire amount of the bogus purchases, while the Commissioner of Income Tax (Appeals) had restricted the addition by applying a net profit rate of 2%. The Court highlighted that the issue at hand was primarily a matter of factual appreciation. It was observed that the entire dispute revolved around the interpretation of the profit ratio and the assessment of the purchases in question.

In its final analysis, the Court concluded that no substantial question of law arose from the case. Therefore, the Tax Appeals were dismissed. The judgment emphasized that the determination of the profit ratio and the treatment of the disputed purchases were factual issues that did not warrant a legal intervention. The decision underscored the importance of factual assessment in tax matters and reiterated the principle that appellate courts should refrain from interfering in purely factual disputes unless a substantial legal question is involved.