Tribunal rules in favor of assessee, directs deletion of estimated profit on unverifiable purchases

The Tribunal ruled in favor of the assessee, directing the AO to delete the estimated profit on alleged unverifiable purchases for A.Y. 2010-11 and 2011-12. The Tribunal found a violation of natural justice as the AO did not provide necessary information or allow cross-examination of suppliers, deeming the profit estimation unwarranted without concrete evidence. The appeals were allowed, emphasizing the lack of evidence linking purchases to suspicious activities and criticizing the reliance on undisclosed material by the AO.

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Issues:
Estimation of profit on alleged unverifiable purchases.

Analysis:
The appeals were filed by the assessee against the order of CIT(A)-28, Mumbai for A.Y. 2010-11 and 2011-12 regarding the estimation of 5% profit on alleged unverifiable purchases. The AO received information from the Sales Tax Department about suspicious parties providing accommodation entries without actual business. Some of these parties were found supplying goods to the assessee. The AO asked for evidence to prove the genuineness of transactions. The assessee submitted various documents, including ledger accounts, purchase bills, payment details, stock register, transportation bills, and delivery challans. The AO accepted the purchases but estimated a 5% profit, adding it to the assessee's income for both years.

The assessee contended that all purchases were genuine, supported by audited accounts and detailed stock ledgers. The assessee requested information from the AO regarding the suspicious suppliers, but it was not provided. The AR argued that no addition or profit estimation was warranted, citing judicial pronouncements and the principle of natural justice. The AR emphasized the lack of cross-examination and information sharing by the AO.

The Tribunal found a violation of natural justice as the AO did not provide the necessary information to the assessee or allow cross-examination of suppliers. The AO's reliance on material not shared with the assessee was deemed a gross violation of natural justice. The Tribunal noted that both AO and CIT(A) accepted the sales and purchases but added profit based on suspicion. Without evidence of suppliers withdrawing cash after receiving cheques, the Tribunal concluded that treating purchases as bogus and estimating profit was unwarranted. The AO was directed to delete the additions.

In conclusion, both appeals were allowed, and the Tribunal ruled in favor of the assessee, directing the AO to delete the estimated profit on alleged unverifiable purchases.

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