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2015 (12) TMI 1538 - AT - Income TaxReopening of assessment - assessment was reopened on an information received from the ACIT, Central Circle 10, Jhandelwalan Extn., on the allegation that the assessee had made bogus purchases - sustenance of the addition to the extent of 20% of the purchases - Held that:- Reassessment quashed as barred by limitation. Now coming to the merit about the sustenance of the addition by the CIT(A) @ 20% of the purchases made by the assessee from Shri Bankey Bihari Trading Co., after hearing the rival submissions and going through the order of the Tribunal in Shree Radheshyam & Company [2015 (11) TMI 1537 - ITAT DELHI]deleted similar addition having held that tax has to be levied on real income and the profit cannot be ascertained without deducting the cost of purchases from the sales as otherwise it amount to levy of tax on gross receipt, she ought to have applied' profit rate in this nature of trade. Estimating profit at the rate of 20% by taking into consideration the or visions of section 40A(3) will not lead to determination of correct real income. Section 40A(3) is meant for a different purpose when the assessee has made purchases in cash. This provision cannot be applied in such cases. Once the purchases are held to be bogus then the trading results declared by the assessee cannot be accepted and right course in such case is to reject books of accounts and profit has to be estimated by applying a comparative profit rate in the same trade. Though there can be a little guess work in estimating profit rate but such profit rate cannot be punitive.
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