2018 (2) TMI 1542 - AT - Income Tax

Bogus purchases - addition to the extent of 15% of the unverifiable purchases - Held that - AO has not disputed the sale of the assessee which is corresponding to the purchase the books of accounts were rejected because of the reasons that that assessee has made purchase from these three parties who were indulged for providing bogus bills without any actual delivery of goods. Once the books of accounts are rejected by the AO the income of the assessee is required to be computed on estimated basis and best decision of the AO. AO cannot make an addition to the book result on account of purchase which is part of the trading account and therefore after rejection of books of accounts only the course of action left with the AO assessee is to estimate the income by applying proper GP or NP rate. We set aside the orders of the authorities below qua this issue and direct the AO to assessee the income of the assessee on the basis of the average gross profit declared and admitted by the AO or attained finality. The AO to consider the past history of the GP of the assessee for arriving to the average rate of GP. - Decided in favour of assessee for statistical purpose.

Summary

Issues involved:
1. Disputed purchase transactions and rejection of books of accounts.
2. Addition to income based on unverifiable purchases.
3. Dispute over the assessment of income and gross profit rate.

Detailed Analysis:

1. Disputed purchase transactions and rejection of books of accounts:
The case involved cross-appeals against the CIT(A)'s order for the assessment year 2007-08. The Assessing Officer (AO) had rejected the books of accounts due to alleged unverifiable and bogus purchases totaling ?85,64,509 from three parties. The CIT(A) confirmed the rejection of books but limited the addition to 15% of the alleged bogus purchases. The Tribunal emphasized that once books are rejected, income must be estimated based on the best judgment of the AO. The Tribunal referred to previous decisions and held that the AO cannot add to the book result after rejecting the books. The Tribunal upheld the CIT(A)'s decision to apply the GP rate for assessing income after the rejection of books.

2. Addition to income based on unverifiable purchases:
The Revenue challenged the CIT(A)'s decision to restrict the addition of ?85,64,509 to 15% of unverifiable purchases. The Tribunal noted that this issue overlapped with the grounds raised by the assessee. Considering the facts and previous findings, the Tribunal disposed of the Revenue's ground in the same terms as the assessee's appeal. Ultimately, the appeal of the assessee was partly allowed for statistical purposes, while the Revenue's appeal was dismissed.

3. Dispute over the assessment of income and gross profit rate:
The Tribunal directed the AO to assess the income of the assessee based on the average gross profit rate declared and admitted by the AO or attained finality. The AO was instructed to consider the past history of the GP of the assessee to determine the average rate of GP. The Tribunal found no error or illegality in the CIT(A)'s orders and upheld the decision based on previous rulings and the circumstances of the case.

In conclusion, the Tribunal addressed the disputed purchase transactions, rejection of books of accounts, addition to income based on unverifiable purchases, and the assessment of income and gross profit rate in a detailed and comprehensive manner, providing a thorough analysis of each issue involved in the judgment.