2017 (11) TMI 1135 - AT - Income Tax

Bogus purchases - profit estimation - non maintenance of proper books of accounts - net profit of 5% of the turnover was added as income to the total income of the assessee - Held that - Admittedly, in such type of cases, there is no option but to estimate the profit which depends upon the subjective/objective approach of an individual and the material facts available on record. Considering the material facts, available on record, we find that, to plug the revenue leakage, the Ld. Assessing Officer has taken a justifiable approach. Before this Tribunal, as mentioned earlier, on the appointed date, the assessee neither presented itself, nor moved any adjournment petition, to justify the conclusion drawn in the impugned order. We find that the factual finding recorded in the assessment order has not been controverted by the First Appellate Authority. Normally, in such type of case, the Tribunal and the Hon ble jurisdictional High Court has adopted the profit at the rate of 12.5% of the bogus purchases. However, considering the material facts, the Ld. Assessing Officer has already taken a justified view, which deserves to be upheld. Therefore, we reverse the order of the First Appellate Authority and upheld the conclusion drawn in the assessment order on the issues in hand. The appeal of the Revenue, is therefore, allowed.

Summary

Issues Involved:
1. Rejection of books of accounts and computation of correct income.
2. Genuineness of purchases and maintenance of stock records.
3. Adoption of gross profit rate and recomputation of income.
4. Ex-parte proceedings against the assessee.
5. Reference to various judicial precedents.

Detailed Analysis:

1. Rejection of Books of Accounts and Computation of Correct Income:
The Revenue challenged the First Appellate Authority's decision, which held that there was insufficient material/evidence to reject the books of accounts. The correct income was computed by excluding one bogus transaction. The Tribunal considered various judicial precedents, including the Hon'ble Gujarat High Court's decisions in Sanjay Oilcakes Industries vs CIT and CIT vs Bholanath Poly Fab. Pvt. Ltd., which emphasized that even if purchases were made from bogus parties, the purchases themselves were not necessarily bogus. The Tribunal concluded that the apparent sellers were not genuine and acted as conduits, leading to inflated purchase prices.

2. Genuineness of Purchases and Maintenance of Stock Records:
The Revenue argued that the assessee failed to maintain stock records/stock registers and could not prove the genuineness of purchases. The Tribunal referred to the Hon'ble Gujarat High Court's decision in CIT vs Vijay M. Mistry Construction Ltd., which held that the assessee had made actual purchases, and the disallowance was based on inflated purchases. The Tribunal also referenced the Hon'ble jurisdictional High Court's decision in CIT vs Ashish International Ltd., which highlighted the importance of cross-examination in establishing the genuineness of statements relied upon by the Revenue.

3. Adoption of Gross Profit Rate and Recomputation of Income:
The First Appellate Authority directed the adoption of a gross profit rate of 1.5% on sales from purchases made from M/s Siddhpad Trading Pvt. Ltd. The Tribunal examined the Hon'ble Gujarat High Court's decisions, which supported the view that only the profit margin embedded in the purchases should be subjected to tax. The Tribunal also considered the Hon'ble jurisdictional High Court's decision in CIT vs Nikunj Exim Enterprises Pvt. Ltd., which upheld the deletion of additions on account of bogus purchases based on substantial evidence, including stock statements and confirmation letters from suppliers.

4. Ex-parte Proceedings Against the Assessee:
The Tribunal noted that the assessee did not appear for the hearing despite multiple notices and adjournments. Consequently, the Tribunal proceeded ex-parte and disposed of the appeal based on the available material. The Tribunal emphasized that the factual findings recorded in the assessment order were not controverted by the First Appellate Authority.

5. Reference to Various Judicial Precedents:
The Tribunal referred to multiple judicial precedents to reach a proper conclusion. These included decisions from the Hon'ble Gujarat High Court, the Hon'ble Apex Court, and the Hon'ble jurisdictional High Court. The Tribunal highlighted the importance of considering the entire material on record and the necessity of some degree of guesswork in cases involving estimation of income.

Conclusion:
The Tribunal reversed the order of the First Appellate Authority and upheld the Assessing Officer's conclusion, which adopted a profit rate of 5% of the turnover. The Tribunal found the approach of the Assessing Officer justifiable and allowed the Revenue's appeal. The Tribunal emphasized that in cases involving bogus purchases, there is no option but to estimate the profit, which depends on the material facts available on record. The appeal of the Revenue was allowed, and the order was pronounced in the open court.