2021 (10) TMI 258 - AT - Income Tax

Estimation of income - Bogus purchases - CIT(A) restricting the addition on account of profit element at the rate of 2.42% of the alleged bogus purchases from tainted parties - DR argued that the learned CIT(A) ought to have estimated the profit at the rate of 12.5% of the value of purchases which has been consistently made by this Tribunal in various other cases - HELD THAT - Assessee is engaged in iron and steel industry and moreover, assessee is only a trader in Iron and Steel. Assessee has disclosed gross profit of 2.42% in its books which has been accepted by the Revenue. It is not in dispute that sales made out of the purchases of ₹ 1,75,16,051/- from seven parties has not been doubted by the Revenue. For the purpose of determining the profit element embedded in the value of such purchases, taking into consideration the industry in which the assessee is dealing with, we deem it fit appropriate to estimate the profit at 5% of the value of such purchases as income of the assessee, which in our considered opinion, would meet the ends of justice. Appeal of the Revenue is partly allowed.

Summary

Issues:
1. Justification of restricting the addition on profit element from alleged bogus purchases.

Analysis:
The appeal pertains to the assessment framed by the Income Tax Officer for the A.Y. 2011-12 under section 143(3) read with section 147 of the Income-tax Act, 1961. The main issue in this case is whether the Commissioner of Income Tax (Appeals) was correct in limiting the addition on account of profit element from alleged bogus purchases. The assessee, engaged in trading Iron and Steel, made purchases from seven parties totaling to ?1,75,16,051. The Assessing Officer treated a portion of these purchases as profit element, resulting in an addition of ?62,87,205 in the assessment.

The Commissioner of Income Tax (Appeals) found that the sales made by the assessee were not in question and only the profit element should be taxed. For credit purchases of ?25,44,256, the Commissioner held that the suppliers were genuine and deleted the addition. Regarding purchases from tainted dealers amounting to ?1,49,71,795, the Commissioner directed to consider the 2.42% gross profit recorded by the assessee as the profit element. The Revenue, aggrieved by this decision, appealed.

During the hearing, the Revenue argued for estimating profit at 12.5% of the purchase value, citing precedents. However, considering the industry and the assessee's business as a trader in Iron and Steel, the ITAT decided to estimate the profit at 5% of the purchase value. The ITAT noted that the sales from these purchases were not disputed by the Revenue. Hence, the ITAT partially allowed the Revenue's appeal, resulting in a modification of the profit element addition.

In conclusion, the ITAT partially allowed the appeal of the Revenue, modifying the addition on account of the profit element from the alleged purchases. The decision was made considering the nature of the assessee's business and industry standards, aiming to achieve justice in the matter.