2021 (3) TMI 675 - AT - Income Tax

Estimation of income - bogus purchases - AO estimated the profit @ 12.5% of the disputed purchases - HELD THAT - As relying on N.K. INDUSTRIES LTD. VERSUS DY. C.I.T 2016 (6) TMI 1139 - GUJARAT HIGH COURT we set aside the order of the Ld. CIT(A) and direct the AO to restrict the additions limited to the extent of bringing the G.P. rate on disputed purchases at the same rate of other genuine purchases. Facts being identical, our decision for the AY 2009-10 applies mutatis mutandis to AY 2011-12.

Summary

Issues involved:
- Disallowance of trading purchases as non-genuine based on information from Sales Tax Department without contrary evidence
- Failure to produce parties for examination during re-assessment proceedings
- Estimation of profit at 12.5% of disputed purchases by the Assessing Officer
- Confirmation of addition by CIT(A)
- Comparison of present case with the judgment in Pr. CIT v. Mohommad Haji Adam & Co & Ors
- Distinction between the present case and Mohommad Haji Adam & Co & Ors case
- Detailed analysis of the judgment in Mohommad Haji Adam & Co & Ors
- Decision to restrict additions based on GP rate on disputed purchases

Analysis:
1. The appeals filed by the assessee challenged the ad-hoc disallowance of trading purchases amounting to ?15,51,341/- as non-genuine, based on information received from the Sales Tax Department without contrary evidence. The Assessing Officer estimated profit at 12.5% of disputed purchases, leading to the addition.

2. During re-assessment proceedings, the parties related to the purchases were not produced for examination, and important documents like delivery challans were missing. The CIT(A) confirmed the addition, stating that the AO's action was in line with previous decisions, leading to the disallowance.

3. The assessee argued that the judgment in Pr. CIT v. Mohommad Haji Adam & Co & Ors should have been followed, citing its applicability to the present case. The Departmental Representative supported the 12.5% estimation and the CIT(A)'s decision, stating the distinction between the cases.

4. The Tribunal analyzed the distinction between the present case and Mohommad Haji Adam & Co & Ors case, focusing on the nature of transactions and the genuineness of purchases. The judgment in Mohommad Haji Adam & Co & Ors was detailed, emphasizing the importance of not rejecting purchases without affecting sales.

5. Following the principles from Mohommad Haji Adam & Co & Ors, the Tribunal set aside the CIT(A)'s order and directed the AO to restrict additions based on the GP rate on disputed purchases. The decision for AY 2009-10 was applied to AY 2011-12, and the appeals were allowed for statistical purposes.

This comprehensive analysis covers the issues involved in the judgment, detailing the arguments presented, the decisions made, and the application of legal principles from previous cases to the present scenario.