2018 (4) TMI 123 - AT - Income Tax

Tribunal dismisses Revenue's appeal, upholds assessee's higher GP rate. Historical data crucial.

The ACIT, Circle-7, Jaipur Versus M/s J.K. Jewelers And M/s J.K. Jewelers Versus The DCIT, Circle-7, Jaipur

The ACIT, Circle-7, Jaipur Versus M/s J.K. Jewelers And M/s J.K. Jewelers Versus The DCIT, Circle-7, Jaipur - TMI Issues Involved:1. Legitimacy of purchases from 12 parties.2. Reopening of assessment under Section 148.3. Addition of 15% of total alleged bogus purchases.4. Validity of reopening of assessment.Detailed Analysis:1. Legitimacy of Purchases from 12 Parties:The original assessment order under Section 143(3) dated 16.12.2010 included an addition of Rs. 1,19,58,445/- by the Assessing Officer (AO) on the grounds that purchases from 12 parties were not genuine. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted this addition except for Rs. 3,00,000/-. The tribunal noted that the CIT(A) had followed the decision of the ITAT in the assessee’s own case for the assessment year 2007-08, which established that once sales are accepted, corresponding purchases cannot be entirely deemed bogus. The CIT(A) also noted that the Gross Profit (GP) rate for the current year (18.55%) was better than the previous year (17.36%), justifying the deletion of the addition except for an ad-hoc addition of Rs. 3,00,000/- to cover discrepancies.2. Reopening of Assessment under Section 148:The AO reopened the assessment by issuing a notice under Section 148 on 30.03.2015, proposing to assess an additional income of Rs. 1,33,94,163/- due to purchases from Adi Impex. The reassessment proceedings led to the rejection of the books of account under Section 145(3) and an addition estimating the profit at 25% of the purchases amounting to Rs. 2,45,02,247/-. On appeal, the CIT(A) restricted this addition to 15%. The tribunal highlighted that once the books of account are rejected, the AO should estimate the income based on a reasonable GP rate, which was not done in this case.3. Addition of 15% of Total Alleged Bogus Purchases:The CIT(A) restricted the addition to 15% of the purchases from Adi Impex, reducing the AO's estimate from 25%. The tribunal noted that the proper course after rejecting the books of account under Section 145(3) is to estimate the income based on the past GP rate. The tribunal referenced the jurisdictional High Court’s decision in CIT vs. Clarity Gold (P) Ltd., which applied an average GP rate of 12% for similar industries. The tribunal concurred with the CIT(A)’s restriction of the addition to 15%, aligning with past GP rates and best judgment principles.4. Validity of Reopening of Assessment:The assessee contended that the reopening of the assessment under Section 148 was invalid as the issue of unverifiable purchases had already been considered in the original assessment under Section 143(3). The tribunal, however, did not delve into this legal issue as the appeal was decided in favor of the assessee on merits, rendering the legal question academic.Conclusion:The tribunal dismissed the Revenue’s appeal and allowed the assessee’s appeal, emphasizing that the GP rate declared by the assessee for the year under consideration was higher than in previous years, which had been accepted by the tribunal. It concluded that no additional income was warranted based on the facts and the past history of the assessee’s GP rates. The tribunal also noted that the rejection of books of accounts does not automatically lead to an addition if the GP rate aligns with historical data. The order pronounced in the open court on 28/03/2018 reflects the tribunal’s adherence to established principles and past decisions.