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2017 (10) TMI 770 - AT - Income TaxEstimated additional profit margin at the rate of 12.5% on the alleged tainted purchases - whether the additional estimation @ 12.5% (over and above already declared GP) may be substantially reduced? - Held that - In the present appeals, the assessee is dealing in soft luggage/bags and has already declared the GP @ 15.82%. Admittedly, there can be no sale without purchases and as canvassed by the Ld. counsel for the assessee even it is admitted that the assessee made purchases from bogus parties still it cannot be ignored that the assessee has already declared the GP @ 15.82%. The Ld. Assessing Officer has further enhanced the addition at the rate of 12.5%, thus, the total GP jumps to 37.87%, which is practically not possible in such type of business. Thus, considering the factual matrix, submissions of the assessee and the material facts, available on record, the additional GP made by the Ld. Commissioner of Income Tax (Appeal) (@ 12.5%) is reduced to 6%, which will safeguard the interest of Revenue. It is worth mentioning that the Ld. counsel of the assessee duly agreed for such reduction. The Ld. Assessing Officer is directed to calculate the disallowance at the rate of 21.82% (15.82% already declared by the assessee plus 6% restricted by us against 12.5% by the Ld. Commissioner of Income Tax (Appeal)). Thus, both the appeals of the assessee are partly allowed.
Issues Involved:
1. Estimated additional profit margin on alleged tainted purchases. 2. Acceptance of stock register and necessary details provided by the assessee. 3. Justification of the additional estimation of 12.5% over the declared Gross Profit (GP). 4. Examination of relevant High Court and Apex Court decisions. 5. Determination of a fair and reasonable profit margin. Detailed Analysis: 1. Estimated Additional Profit Margin on Alleged Tainted Purchases: The appeals by the assessee challenge the orders confirming an estimated additional profit margin of 12.5% on alleged tainted purchases. The assessee argued that the purchases were genuine and duly recorded in the stock register, which was accepted by the Assessing Officer. The assessee's declared GP was 15.82%, and it was contended that the additional estimation of 12.5% was excessive. 2. Acceptance of Stock Register and Necessary Details Provided by the Assessee: The assessee produced the stock register and necessary details before the Assessing Officer, who accepted the same. The sales were not doubted, and it was argued that sales could not occur without corresponding purchases. The assessee requested a substantial reduction in the additional estimation. 3. Justification of the Additional Estimation of 12.5% Over the Declared GP: The Tribunal considered various decisions from the Hon'ble High Courts and the Apex Court to reach a conclusion. The Hon'ble Gujarat High Court in Sanjay Oilcakes Industries vs CIT held that the apparent sellers were not traceable, and the purchases were likely inflated. Similarly, in CIT vs Bholanath Poly Fab. Pvt. Ltd., it was held that the purchases were made from other sources, and only the profit margin embedded in such purchases should be taxed. 4. Examination of Relevant High Court and Apex Court Decisions: Several decisions were examined, including: - Kachwala Gems vs JCIT: An element of guesswork is inevitable in income estimation cases. - CIT vs Vijay M. Mistry Construction Ltd.: The disallowance was restricted to 20% due to inflated purchases. - CIT vs Ashish International Ltd.: The Tribunal deleted the addition for bogus purchases as the assessee was not allowed to cross-examine the concerned director. - CIT vs Nikunj Exim Enterprises Pvt. Ltd.: The Tribunal deleted the additions for bogus purchases based on stock statements and other facts. 5. Determination of a Fair and Reasonable Profit Margin: The Tribunal noted that in such cases, estimating the profit involves a subjective approach based on available material facts. The assessee had already declared a GP of 15.82%, and the additional estimation of 12.5% resulted in a total GP of 37.87%, which was deemed impractical for the business. Therefore, the Tribunal reduced the additional GP to 6%, resulting in a total GP of 21.82% (15.82% declared by the assessee plus 6% additional). Conclusion: The Tribunal partly allowed the appeals, reducing the additional GP estimation from 12.5% to 6%, making the total GP 21.82%. This decision was pronounced in the presence of representatives from both sides at the conclusion of the hearing.
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