Style Quotient Jewellery Pvt. Ltd. Vs ACIT (ITAT Pune)
ITAT Pune Upholds Estimation of Profit @8% When Assessee Fails to Prove Purchases & Creditors
The assessee company engaged in trading of gold, silver and diamond jewellery filed its return declaring a loss of ₹1.89 crore. During limited scrutiny, the AO examined sundry creditors and sales promotion expenses. On verification, notices issued u/s 133(6) to several creditors either remained unserved or unanswered, and the assessee failed to produce supporting documents such as purchase bills, GRN, VAT returns, bank trail and financial statements of the parties. Consequently, the AO disallowed purchases of ₹3.85 crore, added ₹6.99 lakh for unreconciled liabilities, and also made disallowance of ₹11.83 lakh u/s 40(a)(ia) for short/non-deduction of TDS on advertisement expenses.
In appeal, the CIT(A) observed that although the entire purchases were disallowed by the AO, the turnover of the assessee was ₹13.74 crore with GP around 66%, and disallowing the entire purchases would distort the trading results. Taking a holistic view and considering the inability of the assessee to substantiate purchases and creditors, the CIT(A) estimated net profit @8% of turnover (benchmarking with Sec.44AD) and sustained a separate addition of ₹10.30 lakh u/s 40(a)(ia) for TDS default.
Before the ITAT, the assessee argued that Sec.44AD was not applicable since turnover exceeded the threshold and the books were audited. The Tribunal held that although Sec.44AD was not directly applicable, the CIT(A) had merely used the rate as a reasonable benchmark because the assessee failed to substantiate purchases and creditors. Therefore, estimation of profit @8% was justified instead of sustaining the entire purchase disallowance.
The Tribunal also upheld the disallowance u/s 40(a)(ia), holding that audit reports cannot absolve the assessee from statutory TDS obligations.
FULL TEXT OF THE ORDER OF ITAT PUNE
