2012 (1) TMI 218 - AT - Income Tax

Summary

Issues involved: Appeal against trading addition of unverifiable purchases u/s 132(4) for assessment year 2007-08.

Grounds of appeal:
The assessee appealed against the trading addition of Rs. 8,99,985 by disallowing 25% out of alleged unverifiable purchases of Rs. 35,99,940 from five parties suspected of issuing bogus bills.

AO's findings:
The Assessing Officer (AO) observed that the parties from whom purchases were made issued bogus bills, as confirmed by a statement recorded u/s 132(4) of the Act. The AO also noted that postal authorities confirmed non-existence of the parties at the given addresses. Citing legal precedents, the AO rejected the books of accounts and added 25% of non-verifiable purchases.

CIT(A)'s decision:
The Commissioner of Income Tax (Appeals) upheld the rejection of books of accounts and the trading addition. CIT(A) referred to ITAT Jaipur Bench's decision in similar cases and compared the gross profit rate of the assessee with other traders, finding it significantly lower. Considering past cases and commission payments related to bogus bills, CIT(A) confirmed the addition of Rs. 8,99,985.

Tribunal's ruling:
The Tribunal acknowledged the need to reject books if purchases are unverifiable. Upon reviewing the accounts of the involved parties, the Tribunal noted the absence of closing balances and compared it to a previous case where such balances existed. Considering the gross profit rates and sales figures, the Tribunal found it fair to limit the trading addition to Rs. 40,000. Consequently, the appeal was partly allowed.

The judgment was pronounced on 25-01-2012 by the Appellate Tribunal ITAT Jaipur.