2022 (12) TMI 1534 - AT - Income Tax

Profit estimation on ingenuine purchases - purchases from grey market - HELD THAT - Since, in the instant case sales made out of disputed purchases were not doubted by the Revenue, the only logical conclusion could be that assessee had made purchases in the grey market in order to have savings in indirect taxes and instantly, profit element thereon. Hence, it would be just and fair to bring to tax only the profit element embedded in the value of such disputed purchases. We find that this Tribunal has been consistently passing orders by estimating the profit percentage for assessee s engaged in iron and steel industry at 5%. When this was put to learned Authorized Representative, he also fairly agree for estimation of profit at 5%. Accordingly, we estimate the profit element at the rate of 5% of disputed purchases, which in our considered opinion, would meet the ends of justice. Appeals of the assessee are partly allowed.

Summary

Issues:
Challenging the validity of reopening of assessment for the A.Y. 2009-10.
Challenging the profit estimation made on account of ingenuine purchases.

Analysis:
The appeal in ITA No. 2556/Mum/2022 for A.Y. 2009-10 arose from the order passed by the National Faceless Appeal Centre, New Delhi against the order of assessment under Section 143(3) read with section 147 of the Income-tax Act, 1961. The ground challenging the validity of reopening the assessment for A.Y. 2009-10 was not pressed by the authorized representative during the hearing and was dismissed. The main issue in both appeals was the challenge to the profit estimation due to ingenuine purchases.

The assessee, engaged in trading ferrous and non-ferrous metals, had made purchases from tainted parties as per the Sales Tax Department of the Government of Maharashtra. Despite providing relevant documents like purchase invoices, bank statements, stock registers, and supplier details, the assessee failed to prove the delivery of goods from these suppliers. The Assessing Officer conducted independent inquiries which were inconclusive. As the sales made by the assessee were not disputed, the Assessing Officer decided to tax only the profit element from the disputed purchases, estimating it at 15% for A.Y. 2009-10 and 12.5% for A.Y. 2010-11. The CIT (A) directed the profit percentage to be estimated at 12.5% for both years.

Given that the sales from the disputed purchases were not in question, it was inferred that the assessee engaged in grey market purchases to save on indirect taxes and earn profits. The Tribunal historically estimated profit percentages for similar cases at 5%, which the authorized representative agreed to. Consequently, the profit element was calculated at 5% of the disputed purchases to ensure justice. As a result, the grounds raised for A.Y. 2009-10 and A.Y. 2010-11 were partly allowed, and both appeals were partly allowed.

In conclusion, the Tribunal's decision on the profit estimation of ingenuine purchases was based on the nature of the transactions and historical precedents, ensuring a fair and just outcome for the assessee.