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2023 (5) TMI 789 - AT - Income TaxEstimation of profit on bogus sales - AO has applied GP rate of 6.7% to entire sales turnover of the assessee - CIT-A deleted addition - HELD THAT - AO estimation is unacceptable as except two parties the Assessing Officer has not found anything adverse in respect of sales made to others. Therefore he should not have applied the GP rate of 6.75% to entire sales turnover. To that extent Commissioner (Appeals) was justified in reversing the decision of the AO. Insofar as the applicability of the GP rate of 6.75% to sales effected to M/s. Dee Kay Trade Centre and M/s. J.S. Enterprises are concerned there is no difference in the products sold by the assessee to all the parties. Therefore if the GP shown by the assessee in respect of sales effected to other parties is acceptable there is no reason why the same GP rate will not apply to the sales effected to M/s. Dee Kay Trade Centre and M/s. J.S. Enterprises. This is so because when there is similarity in the products sold there cannot be much difference in the GP rate. We hold that the additions sustained by Commissioner (Appeals) in different assessment years under dispute deserves to be deleted. Appeal of assessee allowed.
Issues Involved:
1. Addition/Deletion on account of estimation of profit on alleged bogus sales. Summary: Issue 1: Addition/Deletion on account of estimation of profit on alleged bogus sales The primary issue in the appeals pertains to the addition/deletion made on account of estimation of profit on alleged bogus sales. The assessee, a corporate entity engaged in various businesses including import/export and manufacturing, had filed returns for the assessment years 2005-06 to 2009-10. Originally, assessments for some years were completed under section 143(3) of the Income-tax Act, 1961, while others were processed under section 143(1). A search and seizure operation under section 132 was conducted on 16.03.2011, leading to proceedings under section 153A. During the assessment proceedings, the Assessing Officer (AO) found that the assessee sold chemicals/polymers and wax to M/s. Dee Kay Trade Centre and M/s. J.S. Enterprises, which were found to be non-existent. The AO observed that the sales invoices lacked essential details, and the books of account were not produced. Consequently, the AO treated the amounts received from these parties as unexplained cash credits under section 68 and rejected the books of account, estimating the gross profit (GP) rate at 6.75% based on industry data, leading to significant additions in different assessment years. The learned Commissioner (Appeals) (CIT(A)) partially upheld the AO's decision but applied the 6.75% GP rate only to sales made to M/s. Dee Kay Trade Centre and M/s. J.S. Enterprises, reducing the additions. Both the assessee and the Revenue appealed. The assessee contended that the additions were not based on any incriminating material found during the search and were made purely on an estimated basis. The assessee argued that the parties in question had valid PANs and were assessed under section 144, indicating their existence. The Revenue argued that the survey conducted along with the search justified the additions as the parties were non-existent. The Tribunal noted that the additions were not based on any incriminating material found during the search, as required by the Supreme Court's decision in PCIT Vs. Abhisar Buildwell Pvt. Ltd. The Tribunal also found that the AO's estimation of the GP rate was not supported by any adverse material regarding sales to other parties. The Tribunal held that the AO's application of the GP rate to the entire sales turnover was unjustified and that the same GP rate should apply to sales to all parties, including M/s. Dee Kay Trade Centre and M/s. J.S. Enterprises. Conclusion: The Tribunal allowed the assessee's appeals, deleting the additions sustained by the CIT(A), and dismissed the Revenue's appeals. The order was pronounced on 16th May 2023.
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