2018 (9) TMI 1981 - AT - Income Tax

Appellate tribunal adjusts profit rate for HUF trading metals, reduces alleged bogus purchases to 5.5%.

Nageshwar Steel House, Mumbai Versus Income Tax Officer, Ward 19 (2) (4), Mumbai

The appellate tribunal partially allowed the appeal of the Hindu Undivided Family (HUF) trading metals, adjusting the profit rate for the addition of ... Bogus purchases - addition was restricted to 12.5% of the purchases by CIT-A - contention of the learned Authorised Representative that the assessee has shown a gross profit rate of 3% on the purchases made and has also paid VAT @ 4% on such purchases. Therefore, even if the profit rate of 12.5% is adopted, the gross profit already shown by the assessee as well as VAT paid should be reduced from such profit rate adopted by the Departmental Authorities and the balance amount may be added - HELD THAT:- Considering the fact that the assessee has shown gross profit rate of 3% and has also paid VAT on such purchases @ 4%, direct the Assessing Officer to restrict the addition to 5.5% of the nongenuine purchases of ₹ 1,24,73,405 and delete the balance addition. This ground is partly allowed. Issues involved:1. Challenge to addition of bogus purchases2. Estimation of profit rate for the addition3. Levy of interest under sections 234B and 234C of the Act4. Initiation of penalty proceedings under section 271(1)(c) of the Act1. Challenge to addition of bogus purchases:The assessee, a Hindu Undivided Family (HUF) engaged in trading metals, contested the addition of Rs. 15,59,175 on account of alleged bogus purchases. The Assessing Officer reopened the assessment based on information indicating purchases from hawala operators. Despite the assessee's efforts, the purchases were deemed non-genuine due to lack of proof of delivery. The Assessing Officer estimated profit at 12.5% on these purchases, leading to the addition. The Commissioner (Appeals) upheld this decision. The Authorized Representative argued for a lower profit rate, citing the assessee's gross profit rate of 3% and VAT payment at 4%. Eventually, the Tribunal directed the Assessing Officer to restrict the addition to 5.5% of the non-genuine purchases, considering the already declared profits and VAT paid.2. Estimation of profit rate for the addition:The dispute centered on determining the appropriate profit rate for the addition related to the non-genuine purchases. The Authorized Representative contended for a reduced profit rate based on the assessee's demonstrated gross profit rate and VAT payment. The Tribunal acknowledged these submissions, directing the Assessing Officer to limit the addition to 5.5% of the non-genuine purchases, taking into account the existing profit rate and VAT payment.3. Levy of interest under sections 234B and 234C of the Act:The issue of interest under sections 234B and 234C was deemed consequential and did not require adjudication. It was clarified that interest computation under section 234C should be based on the returned income, resolving this aspect accordingly.4. Initiation of penalty proceedings under section 271(1)(c) of the Act:The challenge against the initiation of penalty proceedings under section 271(1)(c) was considered premature at that stage and was not adjudicated upon. The premature nature of this challenge led to its dismissal without further deliberation.In conclusion, the appellate tribunal partially allowed the assessee's appeal, specifically addressing the challenge related to the addition of bogus purchases by adjusting the profit rate considered for the addition. Other issues regarding interest and penalty proceedings were either deemed consequential or premature, resulting in their dismissal without detailed examination.