Estimated profit rate adjusted downward to reflect business nature and VAT evidence; income recomputed using a reduced rate of 5%.

Tribunal reviewed an assessing officer's estimated addition computed by applying a 12.5% profit rate to alleged bogus purchases and found the rate excessive given the assessee's ferrous/non ferrous metals business and documentary proof including payment records and VAT payment. The tribunal held that a downward adjustment was warranted to reflect a realistic estimate of profit attributable to the impugned purchases and directed the assessing officer to recompute taxable income using a reduced profit rate of 5%, resulting in partial allowance of the appeal in favour of the assessee.

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Issues: Whether the addition made by the assessing officer by applying a profit rate of 12.5% on alleged bogus purchases should be sustained.

Analysis: The assessing officer treated purchases from certain parties as bogus and made an estimated addition by applying a profit rate of 12.5% to the unproved purchases. The assessee furnished documentary evidence including payment records, material receipts and account payee cheques, and contended that the profit rate applied by the assessing officer was excessive given the nature of the assessee's business in ferrous and non-ferrous metals and that VAT was paid on those purchases. The appellate authority confirmed the 12.5% rate. Having regard to the business nature and evidence of VAT payment, a downward adjustment in the estimated profit rate was considered appropriate to reflect a more realistic estimation of profit attributable to the impugned purchases. The tribunal directed recomputation applying a reduced profit rate.

Conclusion: The addition based on a 12.5% profit rate is reduced; the assessing officer is directed to recompute income by applying a profit rate of 5%. The appeal is partly allowed in favour of the assessee.

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