No purchases can be rejected without disturbing the sales in case of a trader thus, additions should be limited to the extent of brining the GP rate on purchases at the same rate of other genuine purchases
DELIP KUMAR SUMERAL KANUNGO vs. INCOME TAX OFFICER
(2021) 61 CCH 0250 MumTrib
Short Overview:
Income from undisclosed sources
Bogus purchases
Estimation of GP
Assessee filed his return of income
Assessee is a reseller of ferrous and non- ferrous metals
AO completed assessment
On receipt of information from Sales Tax Department, that assessee had obtained bogus purchase bills from 8 parties, AO issued notice u/s 148 for reopening assessment.
During course of re-assessment proceedings, AO issued notice u/s 133(6) to said parties to verify genuineness of purchases
However, those notices were returned un-served
AO noted that assessee could not file important documents
AO estimated profit @ 12.5% of disputed purchases and brought to tax
CIT(A) confirmed above addition—Held, in case of Pr. CIT v. Mohommad Haji Adam & Co & Ors (2019) 104 CCH 0391 during course of survey operations in case of entities from whom assessee had claimed to have made purchases, Department collected information suggesting that such purchases were not genuine
On basis of statement recorded during such survey operations, AO concluded that selling parties were engaged only in supplying bogus bills
CIT(A), accepted factum of purchases being bogus
However, CIT compared purchases and sales statements of assessee and observed that Department had accepted sale, and therefore, there was no reason to reject purchases, because without purchases there cannot be sales
CIT(A) held that AO was not correct in adding entire amount of purchases as assessee’s income
CIT(A) deleted addition refreshing it to 10% of purchase amount
Tribunal allowed appeal of assessee partly and dismissed that of Revenue
Tribunal noted that CIT(A) had not given any reasons for retaining 10% of purchases by way of ad-hoc additions
The Tribunal, therefore, deleted such additions, but retained portion of order of CIT(A) to that extent he permitted AO to tax assessee on basis of difference in GP rates
High Court held that “no purchases can be rejected without disturbing sales in case of a trader thus, additions limited to extent of brining GP rate on purchases at same rate of other genuine purchases
Facts in instant case are similar to above decision
Following same, order of CIT(A) is set aside and AO is directed to restrict additions limited to extent of bringing G.P. rate on disputed purchases at same rate of other genuine purchases
Facts being identical, decision for AY 2009-10 applies mutatis mutandis to AY 2011-12
Matter remanded.
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