2023 (5) TMI 69 - AT - Income Tax

Estimation of income - bogus purchases - HELD THAT - As following the order passed in JK Surface Coatings 2021 (10) TMI 1323 - BOMBAY HIGH COURT we are of the considered view that in the light of the gross profit earned by the assessee in the earlier years on the basis of which profit element was fixed at 6.5% of the alleged bogus purchases, we direct the AO to charge the assessee at the gross profit rate @ 6.5% on bogus purchases - Appeal filed by the assessee is partly allowed.

Summary

Issues involved:
The judgment deals with the issues of reassessment proceedings without cross-examination of witnesses, violation of Principle of Consistency, addition of alleged bogus purchases, and determination of gross profit rate on such purchases.

Reassessment Proceedings without Cross-Examination:
The appellant sought to set aside the order confirming reassessment proceedings without providing an opportunity for cross-examination of witnesses, citing violation of legal precedents. The AO made the addition based on information without examining the books of accounts. The Tribunal directed the AO to charge the assessee at the gross profit rate of 6.5% on the alleged bogus purchases.

Violation of Principle of Consistency:
The appellant contended that the AO violated the Principle of Consistency by not following orders from preceding assessment years. The AO made the addition based on estimation and information received, without examining the books of accounts. The Tribunal directed the AO to apply the gross profit rate of 6.5% on the alleged bogus purchases.

Addition of Alleged Bogus Purchases:
The AO added Rs. 46,34,928 to the total income of the assessee, being 12.5% of the alleged bogus purchases. The Ld. CIT(A) confirmed the addition, leading the assessee to appeal to the Tribunal. The Tribunal found that the addition was based on guesswork and estimation, without concrete evidence, and directed the AO to charge the assessee at the gross profit rate of 6.5% on the alleged bogus purchases.

Determination of Gross Profit Rate:
Referring to legal precedents, the Tribunal determined the gross profit rate on the alleged bogus purchases to be 6.5%, based on earlier years' assessments and the reasonable estimation of profit element. The Tribunal partially allowed the appeal, directing the AO to charge the assessee at the gross profit rate of 6.5% on the alleged bogus purchases.

The judgment highlights the importance of following legal precedents, providing opportunities for cross-examination, and making additions based on concrete evidence rather than mere estimation.