2020 (8) TMI 197 - AT - Income Tax

Estimation of income - Bogus purchases - Rejection of books of accounts - estimation of net profit made by the AO at 40% - CIT-A restricted addition by taking average estimated net profit at 7% - HELD THAT - In terms of documentation, assessee might have fullfilled all necessary ingredients, but still it failed to bring any evidence apart from these peripheral documents to demonstrate actual work done by the LPPL or capacity of LPPL to carry out such work. Though we could have recommended for carrying out a fresh investigation in order to prove whether the assessee got this work done actually from the sub-contractor or from some third person, but considering the fact that the actual contract has been completed to the satisfaction of the contractee i.e. ONGC in the present transaction routed through LPPL assessee might have earned a little more profit than actually shown by it in its books of accounts in earlier years or this year. Therefore, we do not find any error in the finding of the ld.CIT(A) for rejection of the books of accounts as well as estimation of profit at 7% on the total turnover. No justification at the end of the AO to estimate profit at 40% of the turnover, which is merely based on some illogical consideration of facts and figures. AO has not provided any material for estimation that profit must have been earned at 40%. Therefore, considering the above facts and circumstances, we do not find any merit in both the appeals of the parties.

Summary

Issues involved:
Cross appeals by assessee and Revenue against order of ld.CIT(A)-2, Ahmedabad for assessment year 2013-14 regarding addition of ?2,63,44,508/- on account of bogus purchases, net profit estimation, rejection of books of accounts, and subsequent appeals.

Detailed Analysis:

1. Addition of ?2,63,44,508/- on account of bogus purchases:
The assessing officer made the addition based on estimated net profit at 40%, later restricted by ld.CIT(A) at ?13,19,651/- by considering average estimated net profit at 7%. Assessee contested the partial confirmation of addition and Revenue challenged the deletion of the entire addition. The rejection of books of accounts was a key issue, with the AO alleging the transaction with a certain company as bogus. Assessee provided explanations and evidence, but the AO rejected them, leading to the addition. The ld.CIT(A) analyzed the issue extensively and reduced the addition to ?13,19,651/- based on 7% net profit estimation.

2. Rejection of books of accounts:
The AO rejected the books of accounts due to alleged bogus transactions, leading to the estimation of net profit at 40%. Assessee argued against the rejection, stating lack of material errors and non-confrontation of crucial evidence. The ld.CIT(A) found the rejection unjustified and reduced the net profit estimation to 7% based on historical data and lack of concrete evidence supporting the higher estimation by the AO.

3. Estimation of net profit and appeals:
Both parties presented arguments on the estimation of net profit, with the assessee contending the higher rate adopted by ld.CIT(A) and seeking further relief, while Revenue supported the original AO's decision. The Tribunal reviewed the submissions and records, finding no illegality in the rejection of books of accounts. However, the estimation of net profit at 40% was deemed unjustified, and the reduction to 7% by ld.CIT(A) was upheld. The Tribunal dismissed both appeals, concluding that the estimation of profit at 40% lacked logical basis and supporting evidence.

4. Peripheral issues and final decision:
Peripheral issues such as interest charges and penalty initiation were deemed either consequential or premature for separate adjudication. The final decision pronounced on 5th August 2020 in Ahmedabad resulted in the dismissal of both the assessee's and Revenue's appeals.

This detailed analysis encapsulates the key issues, arguments presented, findings of the authorities, and the ultimate decision of the Tribunal in the appellate judgment.