Estimation of income: tribunal reduced the AO's applied net profit rate on declared turnover after purchases were found unproved.

Where purchases were not proved and several suppliers denied transactions, the assessee failed to discharge the onus of proof and the AO rejected books and estimated income by applying a net profit rate to declared sales; however, the AO's acceptance of declared sales led the Tribunal to exercise corrective jurisdiction and reduce the applied net profit rate as excessive on the facts, directing a lower net profit rate to be applied on the accepted turnover, thereby partly allowing the appeal and giving relief to the assessee.

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Issues: Whether the Assessing Officer was justified in estimating the assessee's income on the basis that purchases were bogus and applying a net profit rate of 20% on declared turnover; and whether the Tribunal should modify the net profit rate applied in view of the facts and evidence.

Analysis: The Tribunal examined the assessment and appellate records, including the AO's enquiries under Section 133(6) of the Income-tax Act, 1961 and the responses from suppliers. The Tribunal found that the assessee failed to discharge the onus to prove the genuineness of the alleged purchases and that several suppliers either denied transactions or were non-existent. The AO therefore rejected the books of account and applied a net profit rate to estimate income. However, the Tribunal noted that the AO accepted the sales declared by the assessee. Considering the accepted sales figure and the evidence (or lack thereof) regarding purchases, the Tribunal concluded that the net profit rate of 20% applied by the AO was excessive in the facts of the case and exercised its corrective jurisdiction to apply a more appropriate rate of 12.5% on the declared turnover.

Conclusion: The appeal is partly allowed; the Assessing Officer is directed to apply a net profit rate of 12.5% on the total sales of Rs. 8,76,17,876/-, giving part relief to the assessee (decision partly in favour of the assessee).

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