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2012 (5) TMI 816 - AT - Income TaxDeduction of Unexplained Expenditure u/s 69C - Contention was that assessee was involved in business of receiving bogus purchase entries so as to inflate its profit for claiming deduction u/s 80HHC - HELD THAT:- To enable invocation of the provisions of section 69C of the Act, the AO needs to be in possession of some material indicating that the assessee has incurred expenditure on purchases which have not been reflected in the books of account. Existence of such material with the AO, in fact, is the sine qua non for invoking section 69C of the Act. However, he ignored the source of the purchases, even though adequately explained by the assessee - Decision in favour of Assessee. Computation of GP Rate - The GP rate of 14 per cent has been applied by the AO only on the basis of assumptions - Very same AO had, pertinently, himself, accepted the gross profit of 50 per cent under similar cases - HELD THAT:- The GP rate is the difference between the sale value and the purchase value. In the present case, if the AO harboured any doubt concerning the GP rate earned by the assessee, it was well within his rights to investigate not only the rate and the quantity of the sales, but also the rate and quantity of the purchases, and to examine and compare the same with the market rate. AO has not doubted the sale value declared by the assessee. Rather, he has accepted the same to be genuine. Even so, after having done so, he applied the GP rate of 14 per cent without any basis and computed the value of the alleged unaccounted purchase, without even first ascertaining the market value of such purchases and without discharging his onus to establish that the assessee had paid anything over and above what had been stated in its books of account. The GP rate of 14 per cent was applied ignoring that of 50 per cent applied by himself in the cases noted in the preceding para. He did not even venture to differentiate those cases from the present one. CIT(A), while deciding this issue in favour of the assessee, in our considered opinion, has correctly appreciated the full factual as well as legal matrix, as discussed above. We find no error in the findings of the learned CIT(A) in this regard and we hereby confirm the same.
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