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2015 (11) TMI 416 - AT - Income TaxBogus purchases - addition made u/s 69C - addition u/s 41(1) - rejection of books results - estimation of income - Held that - AO has accepted returned income and impliedly rejected book results by making two additions. The AO grossly committed error on fact and also against the well settled principles of the accounting while he disbelieved purchases to be genuine without making and consequent adjustment to sale and that too the AO again made additions regarding three trade creditors alleging the transactions as bogus u/s 41(1) of the Act. These additions made on contradictory observations and baseless action of the AO have been deleted by the CIT(A) and she proceeded to estimate net profit by taking higher percentage of NP in comparison to earlier two years inferring that the AO rightly rejected the book results. This conclusion of the CIT(A) is a sustainable and in accordance with the provisions of the Act which require no interference at our end in view of dicta in the case of CIT vs. Banwarilal Bansidhar 1997 (5) TMI 37 - ALLAHABAD High Court and Amitabh Construction (P) Ltd. (2011 (5) TMI 821 - Jharkhand High Court). In making an assessment after rejecting books of accounts and results therefore, the Assessing Officer has to make an honest estimate and having done so he must take into account the past assessment records of the assessee but the Assessing Officer of the present case miserably failed in discharging his functions while framing assessments. On the other hand, the CIT(A), enjoying coterminous powers with the Assessing Officer estimated the net profit in the proper manner as contemplated by the Act and on the basis of sound and well accepted principles. We may further point out that for subsequent assessment year 2009-10 the returned income of the assessee has been accepted in the order u/s 143(3) of the Act without disputing the amount of purchases and creditors. Finally hold that the CIT(A) neither exceeded her jurisdiction nor adopted a view against the interest of revenue rather she adopted higher percentage for estimation of net profit, in the eventuality of rejection of book results and accounts, as against lower percentage of net profit shown by the assessee and accepted by the revenue. The CIT(A) was fair enough when she upheld the implied rejection of book results, despite noticing some contradictions in the view taken by the Assessing Officer, because of the facts and circumstances surrounding the purchases particularly the reluctance of the sellers to comply with the notice issue to them u/s 133(6) of the Act and consequently making another addition in regard to trade creditors. In this situation, the CIT(A) was justified and correct in estimating net profit @5% of turnover and directing the Assessing Officer to delete other two additions. We are inclined to hold that the Assessing Officer made addition without making any express adjudication stating rejection for book results and the CIT(A) was right and justified in inferring rejection of book results and consequently directing the Assessing Officer to estimate net profit @5% of turnover which is certainly higher than the book results of past/preceding two years, The CIT(A) was correct in allowing relief to the assessee and thus we are unable to see any ambiguity, perversity or any other valid reason to interfere with the same and hence we uphold the conclusion of the CIT(A). - Decided against revenue.
Issues Involved:
1. Bogus purchases. 2. Deletion of addition under Section 41(1) of the IT Act regarding alleged bogus creditors. 3. Benefit of net profit estimation. Detailed Analysis: Issue 1 & 2: Bogus Purchases and Deletion of Addition under Section 41(1) The Revenue challenged the CIT(A)'s decision to allow alleged bogus purchases and delete additions under Section 41(1) concerning disputed creditors. The Assessing Officer (AO) had added Rs. 1,68,09,186 under Section 69C for unverified purchases and Rs. 1,31,22,361 under Section 41(1) for alleged bogus creditors. The AO based these additions on discrepancies such as mismatched PAN numbers and unserved notices under Section 133(6). The CIT(A) granted relief to the assessee by noting: - Copies of the bills for the purchases were filed, and payments were made through account payee cheques. - Discrepancies in PAN numbers were not decisive as the purchases were made based on demand, price, and quality. - Purchases from the same sellers in earlier or subsequent years were not questioned by the AO. - The PAN number belonged to the seller, who was the proprietor of the business under a different name. - The assessment for the subsequent year (2009-10) was completed without disallowance on this count. The CIT(A) concluded that the AO's reasons for making the additions were not strong or legally justified. The CIT(A) observed that the AO disallowed the purchases without disturbing the sales figures, leading to a contradiction in the financial account results. The CIT(A) held that if sales figures are accepted, it is logical to presume that such sales could not have been made without the purchases shown in the profit and loss account. Issue 3: Benefit of Net Profit Estimation The CIT(A) directed the AO to estimate the net profit at 5% of turnover, based on the average net profit rate of the preceding two years, instead of making additions under Sections 69C and 41(1). The CIT(A) noted that the AO had not accepted the book results and had made additions without correspondingly adjusting the sales figures. The CIT(A) concluded that the proper way to compute income was to apply the net profit rate on the basis of the average rate of net profit adopted in the immediately preceding assessments. The Tribunal upheld the CIT(A)'s decision, noting that the CIT(A) used discretion properly and in a justifiable manner. The Tribunal agreed that the CIT(A) was correct in estimating the net profit at 5% of turnover, which was higher than the net profit rate shown by the assessee in the earlier years. Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the additions made by the AO under Sections 69C and 41(1) and to estimate the net profit at 5% of turnover. The Tribunal found no ambiguity or perversity in the CIT(A)'s order and concluded that the CIT(A) had granted relief to the assessee after a proper and logical analysis of the facts and circumstances of the case.
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