2021 (8) TMI 1141 - AT - Income Tax

Tribunal emphasizes fair assessment in tax appeal, criticizes AO's oversight

The Tribunal allowed the appeal, directing the deletion of the sustained addition. It emphasized the importance of considering past GP rates when ... GP estimation - Rejection of books of accounts - fresh estimation of gross profit of 13% by the ld CIT(A) in the second round of litigation - G.P rate of 15.42% has already been applied by CIT(A) which has been upheld by the Tribunal in the first round of litigation - HELD THAT:- AO has made an addition towards unverified purchases to revised total income as computed after giving appeal effect u/s 143(3)/250 dated 16.02.2007 to order passed by the ld CIT(A) wherein he has estimated G.P rate of 15.42% - addition of ₹ 15,39,905/- is made over and above the G.P addition made in the first round of litigation wherein G.P rate has been taken at 15.42% as against 12.14% declared by the assessee. CIT(A) has rightly deleted the addition as we have noted above as there cannot be separate addition other than estimation of profits where the books of accounts have been rejected. CIT(A) has estimated G.P @ 13% failing to take into the consideration the fact that G.P has already been estimated earlier @ 15.42% and which has been accepted by both the parties and has attained finality and necessary effect given to by the AO while passing the impugned assessment order. In the contention so advanced by the AR and the addition so sustained by the ld CIT(A) amounting is hereby directed to be deleted. - Decided in favour of assessee. Issues:1. Addition of alleged bogus purchase and low gross profit.2. Failure to summon parties for confirming purchases.3. Estimation of gross profit rate.Analysis:Issue 1: Addition of alleged bogus purchase and low gross profitThe appellant challenged the addition of Rs. 15,39,905 as 25% of alleged bogus purchase and an additional trading addition of Rs. 30,79,250 on low gross profit. The CIT(A) upheld a reduced addition of Rs. 8,08,400. The appellant argued that the initial addition was already deleted by ITAT in a previous order. The AO and CIT(A) were criticized for ignoring the ITAT's previous decision. The appellant contended that the higher GP rate applied in the first round adequately addressed the alleged bogus purchases. The Tribunal agreed and directed the deletion of the addition.Issue 2: Failure to summon parties for confirming purchasesThe appellant argued that the AO ignored requests to summon parties for confirming purchases worth Rs. 61,59,622, shifting the burden unfairly. The appellant maintained that necessary documents were provided, and the AO did not raise further queries. The AO's failure to summon parties under section 131 was highlighted. The Tribunal found that the appellant fulfilled obligations by providing required documents and requesting summons, thus ruling the addition unsustainable.Issue 3: Estimation of gross profit rateThe AO made an addition of Rs. 15,39,905 on unverified purchases, rejecting books under section 145(3). The CIT(A) estimated gross profit at 13%, differing from the appellant's declared 12.14%. The Tribunal emphasized that once books are rejected, income should be estimated based on past history. The CIT(A) was faulted for not considering the previously accepted GP rate of 15.42%, leading to the deletion of the additional Rs. 8,08,400. The Tribunal held that the CIT(A) should not have estimated a lower GP rate in the second round, as the previous GP rate had attained finality.In conclusion, the Tribunal allowed the appeal, directing the deletion of the sustained addition. The judgment emphasized the importance of considering past GP rates when estimating income after rejecting books and highlighted the AO's duty to make a fair assessment based on all relevant factors.