Tribunal allows revenue's appeals, upholds reopening, directs 12.5% net profit estimate on purchases

The Tribunal partly allowed the revenue's appeals for assessment years 2009-10 and 2010-11. The assessment reopening was upheld, but the Tribunal directed the AO to estimate a net profit of 12.5% on purchases from alleged hawala operators instead of adding the entire amount to income. The decision was based on lack of evidence of cash receipts and industry profit averages.

---

---

Issues Involved:
1. Validity of reopening the assessment.
2. Genuineness of purchases from alleged hawala operators.
3. Appropriate percentage of net profit estimation on alleged bogus purchases.

Detailed Analysis:

1. Validity of Reopening the Assessment:
The assessee objected to the reopening of the assessment on the basis that it was initiated based on information received from an external source, which they argued was not tenable in law. However, the CIT(A) dismissed this ground, supporting the validity of the reopening of the assessment.

2. Genuineness of Purchases from Alleged Hawala Operators:
The assessee was engaged in providing lifting solutions and had declared purchases from M/s Rushabh Enterprises and M/s Swastik Enterprises, both listed as hawala operators by the Maharashtra Sales-tax Department. The AO treated these purchases as bogus due to the lack of documentary evidence to establish their genuineness and added the total amount to the income under Section 69C of the Income-tax Act, 1961. The assessee provided purchase orders, invoices, delivery challans, consignment notes, and bank statements to support the purchases but failed to produce the parties in person. The CIT(A) noted that the assessee had declared a gross profit of 37.13%, which was above the industry average, and found no evidence of cash being received back from suppliers. Consequently, the CIT(A) deleted the additions made by the AO.

3. Appropriate Percentage of Net Profit Estimation on Alleged Bogus Purchases:
The Tribunal agreed with the CIT(A) that the entire purchases should not be added back but only the profit element embedded in such purchases. Referring to various judicial precedents, including the Hon'ble Gujarat High Court's decision in Vijay Proteins Ltd vs ACIT, the Tribunal found a reasonable net profit estimation of 12.5% on the total bogus purchases to be appropriate. The Tribunal directed the AO to estimate a net profit of 12.5% on the purchases from M/s Rushabh Enterprises and M/s Swastik Enterprises for both assessment years 2009-10 and 2010-11.

Conclusion:
The appeals filed by the revenue for both assessment years 2009-10 and 2010-11 were partly allowed. The Tribunal upheld the reopening of the assessment but directed the AO to estimate a net profit of 12.5% on the total purchases from the alleged hawala operators instead of adding the entire purchase amount to the income. The order was pronounced in the open court on 28th July 2017.

---