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2020 (10) TMI 1196 - AT - Income TaxEstimation of income - unverified purchases - Book results have been rejected by invoking the provisions of section 145(3) of the Act and the G.P estimation @ 30% has been done and the trading addition has been made by the AO - HELD THAT - Regarding the challenge to the rate of G.P estimated by the AO @ 30% as against declared by the assessee @ 13.82%, we find that in the first round of appellate proceedings, the matter has been considered by the Hon ble High Court wherein in respect of appeal filed by the Revenue, the matter has been decided in favour of the assessee and the G.P rate as sustained by the Tribunal @ 17% has been confirmed and the matter has attained finality. Similar is the finding recorded by the ld CIT(A). Therefore, the AO is directed to apply G.P rate of 17% and separate addition in respect of unverified purchases is hereby deleted. In the result, the grounds of appeal are disposed off.
Issues Involved:
1. Sustaining 100% disallowance of alleged unverifiable purchases. 2. Sustaining trading addition by applying a higher GP rate. 3. Rejection of books of accounts under section 145(3). Issue-wise Detailed Analysis: 1. Sustaining 100% Disallowance of Alleged Unverifiable Purchases: The assessee, engaged in the business of trading precious and semi-precious stones, challenged the CIT(A)'s decision to sustain a 100% disallowance of unverifiable purchases amounting to ?11,84,063/-. The assessee maintained detailed records, including stock registers, purchase and sale bills, and other relevant documents, which were produced before the AO. Despite this, the AO resorted to section 145, applied a GP rate of 30%, and worked out a trading addition of ?2,22,208/-. The AO also made an addition for cash purchases from unregistered dealers amounting to ?11,84,063/- on a substantive basis and a trading addition of ?2,22,208/- on a protective basis. In the first round of appellate proceedings, the CIT(A) upheld a disallowance of ?2,96,016/- (25% of ?11,84,063/-) on a substantive basis and ?2,22,208/- on a protective basis. The Tribunal later directed the AO to apply a GP rate of 17% and not to make a separate addition for cash purchases. The High Court remitted the matter relating to unverifiable purchases back to the AO. In the set-aside proceedings, the AO again applied a GP rate of 30% and made an addition of ?11,84,063/- for cash purchases. The CIT(A) sustained the addition of ?11,84,063/- but deleted the GP addition of ?2,22,208/-, stating that additions for bogus purchases and GP for the same default cannot be simultaneously made. 2. Sustaining Trading Addition by Applying a Higher GP Rate: The assessee also challenged the CIT(A)'s decision to sustain a trading addition of ?2,22,289/- on a protective basis by applying a higher GP rate of 30% against the declared GP rate of 13.82%. The assessee argued that they maintained full records and that the AO did not point out any significant defects in the accounting system. The Tribunal, in the first round of appellate proceedings, held that once the books of accounts are rejected, no separate addition for unverifiable purchases should be made, and a GP rate of 17% should be applied. The High Court upheld the Tribunal's decision regarding the GP rate but remitted the issue of bogus purchases to the AO. In the set-aside proceedings, the AO applied a GP rate of 30% and made a trading addition of ?2,22,208/-. The CIT(A) deleted this GP addition, following the Tribunal's earlier decision that only one of the additions (either for unverifiable purchases or GP difference) should be made. The Tribunal reiterated that once books are rejected, the AO should make a fair estimate of income, and no separate addition for unverifiable purchases is required. The AO was directed to apply a GP rate of 17%, and the separate addition for unverifiable purchases was deleted. 3. Rejection of Books of Accounts under Section 145(3): The AO rejected the assessee's books of accounts under section 145(3), citing unverifiable purchases and applied a GP rate of 30%. The Tribunal, in the first round, directed the AO to apply a GP rate of 17% and not make a separate addition for unverifiable purchases. The High Court upheld the Tribunal's decision on the GP rate but remitted the issue of unverifiable purchases to the AO. In the set-aside proceedings, the AO again applied a GP rate of 30%, but the CIT(A) deleted the GP addition, stating that only one of the additions should be made. The Tribunal directed the AO to apply a GP rate of 17%, consistent with the earlier decision. Separate Judgments Delivered: - For A.Y 2003-04 and 2004-05, the AO was directed to apply a GP rate of 17% and delete the separate addition for unverifiable purchases. - For A.Y 2008-09, the Tribunal upheld the CIT(A)'s decision to apply a GP rate of 30%, as the matter had attained finality in the first round of appellate proceedings. Conclusion: The Tribunal directed the AO to apply a GP rate of 17% for A.Y 2003-04 and 2004-05 and delete the separate addition for unverifiable purchases. For A.Y 2008-09, the Tribunal upheld the application of a GP rate of 30%. The appeals were disposed of in light of these directions.
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