12.5% Addition justified in absence of direct one to one relationship between purchases and sales

RELEVANT EXTRACT OF THE JUDGMENT

2.1 The assessee, Proprietor of M/s. Citizen Sales Corporation, engaged in the business as wholesale dealer of iron and steel, filed her return of income for A.Y. 2009-10 on 25.09.2009 declaring total income of Rs. 1,81,900/-. The return was processed under section 143 (1) of the Income Tax Act, 1961 (in short ‘the Act’). On the basis of the information received, that the assessee was taking bogus bills from certain parties on payment of commission, the Assessing Officer (AO) initiated proceedings under section 147 of the Act for reopening the assessment for A.Y. 2009-10 and notice under section 148 of the Act dated 12.03.2013 was issued and served o the assessee. The assessment was completed under section 143 (3) r.w.s. 147 of the Act vide order dated 18.03.2014, wherein the assessee’s income was determined at Rs. 42,75,360/-, in view of an addition of 41,23,015/- under section 69C of the Act as unexplained expenditure on account of bogus purchases for which accommodation/bogus bills were taken by the assessee from nine parties listed in page 2 of the order of assessment.

2.2 Aggrieved by the order of assessment for A.Y. 2009-10 dated 18.03.2016_‘ the assessee preferred an appeal before the CIT (A)-40_‘ Mumbai. The learned CIT (A) disposed off the assessee’s appeal by way of the impugned order dated 10.02.2016 allowing the assessee partial relief; whereby only the profit on bogus purchases estimated @12.5% of 41_‘23_‘015/- i.e. 5_‘15_‘377/- was held to be taxable in the assessee’s hands_‘ as against the entire value of bogus purchases of 4 1_‘23_‘015/- brought to tax under section 69C of the Act by the AO.

2. Addition by estimating the profit at the rate of 12.5% on alleged bogus purchases (i.e. 12.5% on Rs.41,23,015/-) – Rs.5,15,377/-ases of 41,23,O15/-

6.1 In these grounds the assessee assai is the impugned order of the learned CIT (A) in making an addition of 5_‘ 15_‘377/- on account of estimated profit @12.5% on bogus purchase of 41_‘23_‘015/-. It is contended that the learned CIT (A) failed to appreciate that the material purchased during the year are fully recorded in the assessee’s books of account_‘ which were not rejected by the AO and that the same goods were subsequently sold and the profit earned thereon is offered to tax. Without prejudice to the above_‘ the assessee contends that the addition hoc estimation of her profits at 5_‘ 15_‘377/- is unjustified and to be deleted since the basis for the said estimation was certain information received from the Sales Tax Department_‘ without providing the assessee opportunity to cross-examine the persons on whose statements an adverse inference was drawn against the assessee.

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