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2023 (8) TMI 446 - AT - Income TaxEstimation of income - Unexplained purchases - assessee had purchased the goods in question at a discounted value from some supplier/suppliers operating in open/grey market - quantification of the profit by procuring the goods in question at a discounted value from the open/grey market - unaccounted income for carrying the business outside his books of accounts on an estimate basis - HELD THAT - Once the books of account of the assessee had been rejected by the A.O u/s.145(3) then, he could not have thereafter relied upon the said rejected books of accounts for making additions by separately disallowing any part of the ledger head expenses, but at the same time, are unable to persuade ourselves to subscribe to the part-rejection/rejection of the books of account of the assessee by the lower authorities for the standalone reason that the assessee could not verify/substantiate to the hilt the purchases of Rs. 31 lacs (out of total purchases of Rs. 58.13 crore made during the year) i.e. 0.53% of the total purchases and thus, set-aside the part-rejection/rejection of the books of account u/s.145(3) of the assessee by the lower authorities. As observed by us hereinabove, the A.O had made certain independent additions/disallowances, viz. addition of unaccounted railway rack booking charges, disallowance of unverifiable labour expenses, disallowance of unverifiable hamali expenses and disallowance out of office expenses, car and vehicles which thereafter, were telescoped by the CIT(Appeals) by applying the NP rate (average) of 1.45% to his total turnover for the year under consideration. As we have set-aside the aforesaid methodology adopted by the CIT(A) for computing the assessee s income, therefore, as a consequence thereto the aforesaid issue is also restored to the file of the A.O for fresh adjudication. Appeal of the assessee is partly allowed for statistical purposes
Issues Involved:
1. Estimation of Net Profit by CIT(A). 2. Treatment of Purchases as Bogus. 3. Rejection of Books of Accounts and Disallowance of Expenses. Summary: 1. Estimation of Net Profit by CIT(A): The CIT(A) erred in estimating the net profit at 1.45% instead of 0.82% disclosed by the appellant, resulting in an enhancement of Rs. 50,45,981/-. The CIT(A) concluded that the assessee failed to substantiate the authenticity of purchases from a tainted party and thus rejected the books of accounts. The CIT(A) substituted the AO's additions with an estimated net profit rate of 1.45% based on the average of the last three years. 2. Treatment of Purchases as Bogus: The AO observed that the assessee made purchases from M/s. Krishna Processors, Raipur, a firm found to be bogus. The assessee failed to provide supporting documentary evidence to substantiate these purchases. Consequently, the AO treated the purchases as bogus and disallowed 25% of the value of these purchases, adding Rs. 7,75,000/- to the income. The CIT(A) upheld the rejection of the books of accounts but modified the addition by applying a net profit rate of 1.45% on the total turnover. 3. Rejection of Books of Accounts and Disallowance of Expenses: The AO rejected the books of accounts under Sec. 145(3) of the Act and made independent additions/disallowances under various heads of expenses, including unaccounted railway rack booking charges and unverifiable labor, hamali, and office expenses. The CIT(A) held that once the books of accounts are rejected, the AO cannot rely on them to make further additions. However, the CIT(A) applied a net profit rate of 1.45% to the total turnover to estimate the income. Tribunal's Decision: The Tribunal upheld the view that the purchases were not genuine but disagreed with the basis for quantifying the additions. It directed the AO to restrict the addition to the extent of bringing the GP rate of the bogus purchases to the same rate as that of other genuine purchases. The Tribunal also set aside the part-rejection/rejection of the books of accounts and restored the issue of disallowance of specific expenses to the AO for fresh adjudication, directing the AO to afford a reasonable opportunity of being heard to the assessee. Conclusion: The appeal of the assessee was partly allowed for statistical purposes, with directions for fresh adjudication on specific issues by the AO.
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