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2017 (8) TMI 748 - AT - Income TaxBogus purchases made from three parties - notices issued u/s 133(6) were returned by the postal authorities with the remark, “not known” - profit estimation - Held that:- Though assessee has proved the initial onus cast upon him, but failed to substantiate the purchase with further evidence in the form of producing the parties in person as required by the AO. Therefore, considering the overall facts and circumstances of the case, we are of the view that instead of taxing the total alleged bogus purchases, the profit element embedded in such purchases only needs to be taxed. In this case, assessee has declared a gross profit of 2% to 6% in the preceding financial years. We further observe that the assessee might have saved the tax portion embedded in such purchases. If we take into account the average gross profit declared by the assessee and the probable savings on account of tax portion on bogus purchases, the assessee might have saved a profit of 6-7% on those alleged bogus purchases. Therefore, considering the facts and circumstances of the case and also to meet the ends of justice, we deem it appropriate to direct the AO to estimate profit of 7% on alleged bogus purchases from those parties. Addition towards difference in credit balances in 3 parties’ accounts - Held that:- We observe that it is quite possible in business transactions that there may be variance in bill of customers and final payment made against such bills because of various reasons. As requested by the assessee, the AO ought to have provided an opportunity to the assessee to reconcile the difference before making additions. We further notice that the assessee has filed a paper book with necessary evidences explaining the difference noticed by the AO in those parties’ accounts. Therefore, considering the overall facts and circumstances, we are of the view that the issue needs to be verified by the AO in the light of the details filed by the assessee. Hence, we set aside the issue to the file of the AO and direct him to verify the reconciliation filed by the assessee before making any addition towards difference in sundry creditors’ accounts. Appeal filed by the assessee partly allowed for statistical purpose.
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