Additions made on ground of bogus purchases by AO deleted by ITAT.
Additions made on ground of bogus purchases by AO deleted by ITAT.
Assessee filed return. AO reopened it on ground of bogus purchases. AO made addit'n, treating entire purchases to be accommodation entries. On appeal CIT(A) upheld reassessment but reduced addit'n to 20%. On appeal ITAT held, profit rate cannot be punitive, only be guessed. Further, following decision of Tribunal in case of Unique Metal Industries Vs. ITO in ITA no.1372/Del/2015 ,deleted addition as sustained by CIT(A) amounting to Rs.94,771/-.-500261
Facts in brief:
1. Assessee filed the return declaring an income of Rs. 1,24,182/-. AO reopened it on the allegation that the assessee had made bogus purchases.
2. AO made addition of Rs. 4,73,855/-, treating the entire purchases made by the assessee from M/s Shree Bankey Bihari Trading Company, to be the accommodation entries.
3. On appeal, CIT(A) upheld the validity of the reassessment, but reduced the addition to 20% of the purchases, amounting to Rs. 94,771/-.
On appeal, ITAT held as under:
4. As regards the additionof20% sustained by the learned CIT(A), I am of the view that since purchases are not bogus the addition on this account cannot be sustained. Even otherwise the addition of 20% on the facts and circumstances is apparently too high.
5. The learned CIT(A) having held that tax has to be levied on real income and the profit cannot be ascertained without deducting the cost of purchases from the sales as otherwise it amount to levy of tax on gross receipt, she ought to have applied' profit rate in this nature of trade.
6. Estimating profit at the rate of 20% by taking into consideration the or visions of section 40A(3) (of Income Tax Act, 1961) will not lead to determination of correct real income. Section 40A(3) (of Income Tax Act, 1961) is meant for a different purpose when the assessee has made purchases in cash. This provision cannot be applied in such cases.
7. Once the purchases are held to be bogus then the trading results declared by the assessee cannot be accepted and right course in such case is to reject books of accounts and profit has to be estimated by applying a comparative profit rate in the same trade. Though there can be a little guess work in estimating profit rate but such profit rate cannot be punitive.
8. Ld. DR even though vehemently relied on the order of CIT(A) as well as that of the AO, but could not bring to our knowledge any cogent material or evidence which may compel us not to follow the decision of this Bench in ITA no. 1372/Del/2015 (supra). I, therefore, respectfully following the decision of this Tribunal in the case of Unique Metal Industries (supra), delete the addition as sustained by the ld. CIT(A) amounting to Rs.94,771/-.
9. In the result, the appeal filed by the assessee is allowed.
Case Reference-Radhey Shyam & Co., Delhi vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH "SMC-1" NEW DELHI
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