Appellate tribunal reduces profit rate for iron and steel business, considers low margins.

The appellate tribunal partially allowed the appeal, reducing the profit rate to 5% from the initially applied 12.5% on bogus purchases in the iron and steel business. The tribunal considered the low profit margins in this trade and the assessee's evidence of 2% profit on sales from such purchases, directing the AO to recalculate income using the revised profit rate. This decision was made in light of the circumstances and evidence presented, resulting in a favorable outcome for the assessee.

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Issues:
Appeal against CIT(A) confirming addition based on profit rate applied to bogus purchase.

Analysis:
The appeal arose from the CIT(A)'s order confirming the addition made by applying a profit rate of 12.5% to the bogus purchase. The assessee raised two grounds challenging the CIT(A)'s decision. The facts revealed that the assessee, engaged in the iron and steel business, was alleged to have made purchases from hawala parties providing bogus bills. The AO issued notices under section 133(6) to the parties, which were returned as 'left', and the assessee failed to produce these parties. The assessee submitted documentary evidence during assessment and appellate proceedings, arguing that sales cannot occur without purchases. However, the CIT(A) upheld the AO's decision to reject the books of account under section 145(3) based on apparent deficiencies. The CIT(A) referred to a Rajasthan High Court judgment to justify the rejection of accounts when found unreliable. The AO estimated the profit rate due to bogus purchases instead of disallowing the entire amount, acknowledging that sales cannot occur without purchases. The CIT(A) confirmed the addition, leading to the appeal.

In the appellate tribunal, the assessee contended that the profit element was higher due to dealing in iron and steel and requested a reduction in the profit rate, stating that the profit margins in this trade are low. The tribunal considered the facts and circumstances, determining that a profit rate of 5% would be reasonable. This decision was based on the assessee's declaration of 2% profit on sales from bogus purchases, along with proofs of payments of sales tax/VAT to the Sales Tax Department. The tribunal directed the AO to recompute the income by applying a 5% profit rate on the bogus purchase, partially allowing the appeal.

Therefore, the tribunal partly allowed the appeal, emphasizing the reduction in profit rate to 5% based on the circumstances presented and the assessee's declarations and evidence.

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