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2024 (2) TMI 890 - HC - Income TaxEstimation of income - bogus purchases - HELD THAT - We are of the view that the assessee cannot be punished since sale price is accepted by the revenue. Therefore, even if 6 % gross profit is taken into account, the corresponding cost price is required to be deducted and tax cannot be levied on the same price. We have to reduce the selling price accordingly as a result of which profit comes to 5.66 %. Therefore, considering 5.66 % of Rs. 3,70,78,125/- which comes to Rs. 20,98,621.88 we think it fit to direct the revenue to add Rs. 20,98,621.88 as gross profit and make necessary deductions accordingly. Accordingly, the said question is answered partially in favour of the assessee and partially in favour of the revenue. It is impossible in this appellate jurisdiction to investigate what the product was and what should have been the profit margin. Moreover, the CIT(A) and the ITAT have on facts come to a conclusion that 8% is the reasonable figure. Therefore, in our view, the judgment of N.K. Industries 2016 (6) TMI 1139 - GUJARAT HIGH COURT does not assist Appellant case.
Issues involved:
The judgment involves the following Issues: 1. Impugning an order by the Income Tax Appellate Tribunal (ITAT) allowing assessee's appeal and dismissing Revenue's appeal. 2. Whether the Tribunal order was perverse in dismissing the Appeal without giving reasons? 3. Whether the Tribunal was right in upholding the orders of the CIT(A) regarding non-genuine purchases? 4. Could the addition of unexplained purchases be limited to a certain percentage as held by the CIT(A) and upheld by the Tribunal? Comprehensive details of the judgment for each issue involved: 1. The Appellant, a trader in chemicals, was assessed for the Assessment Year 2011-12, where the Assessing Officer concluded that the Appellant had engaged in bogus purchases, disallowing the entire purchases worth Rs. 1.35 Crores under Section 69C of the Income Tax Act, 1961. The CIT(A) restricted the unexplained expenditure to 8% of the total purchases made, based on a factual finding that the A.O. did not doubt the genuineness of payments made through banking channels. The ITAT dismissed both appeals, upholding the CIT(A)'s order. 2. Ms. Gokhale relied on a Gujarat High Court judgment to argue that when purchases are established as bogus, the entire amount should be added to the assessee's income. However, the Court noted that the CIT(A) and ITAT had found 8% to be a reasonable profit margin, supported by various orders and judgments taking a similar stance. 3. The Court referred to previous cases to distinguish the applicability of certain judgments. It noted that in cases where the material was available during a search, exposing the falsity of entries in regular books of accounts, the decision to restrict the addition of unexplained expenditure to a certain percentage did not apply. The Court emphasized that the facts of each case must be considered. 4. The Court highlighted that the CIT(A) and ITAT had determined 8% to be a reasonable figure based on the facts of the case. It concluded that the judgment cited by Ms. Gokhale did not assist her case, and there was no reason to interfere. The appeal was dismissed. In summary, the judgment addressed the issues of bogus purchases, unexplained expenditure, and the determination of a reasonable profit margin in assessing the Appellant's income for the relevant assessment year.
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