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2016 (9) TMI 1197 - HC - Income TaxRevision u/s 263 - Gross Profit ratio - disallowance of expenditure - additions on account of bogus purchases - Held that:- Assessing Officer disallowed the entire expenditure and added back the full sum of ₹ 62.75 lacs shown to have been expended by the assessee for purchases from F.H. Rizvi concerns. There was no further material with the Assessing Officer or even possible avenue for inquiring whether remaining purchases of assessee were genuine or not. There was thereafter, no further scope of making addition in the guise of adjusting the Gross Profit ratio. The disallowance itself would automatically reflect in increasing the Gross Profit from one claimed by the assessee in the original return. Only on this ground, the order of assessment can be stated to be neither erroneous nor prejudicial to the Revenue. If the Commissioner had an angle of further inquiry to be made with respect to purchases from party unconnected to F.H. Rizvi, such angle has not come on record. The notice issued by the Commissioner does not suggest that since it was found that all purchases from F.H. Rizvi by the petitioner were bogus, the Assessing Officer could have inquired into the genuineness of the remaining purchases also. All that the Commissioner conveyed by way of reasons in the impugned notice was that the Assessing Officer did not bear in mind the Gross Profit ratio element. It is true that increasing the Gross Profit is one of the modes adopted by the assessing authority while adjusting the claim by the assessee. This can be so on the basis of materials on record suggesting that the current rate of Gross Profit does not reflect the true financial picture. Nevertheless, the same methodology cannot be applied arbitrarily without atleast some materials suggesting that the Gross Profit presented by an assessee was inaccurate. When the entire block of purchases made by the assessee is disallowed, the same would have automatic and direct impact on bringing up the Gross Profit ratio of the assessee during such year. Without there being any further material suggesting that other purchases were also not genuine, further increase of the Gross Profit ratio, was an option simply not available with the Assessing Officer.
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