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Facts
The assessee, engaged in trading metal scrap, filed its return of income. The AO doubted the genuineness of purchases totaling Rs.70,73,285/- from 16 parties due to lack of payment proof, making an addition of Rs.8,84,160/- by applying a 12.5% profit rate. The CIT(A) dismissed the assessee's appeal ex-parte for want of prosecution.
Held
The Tribunal noted that the sales were not doubted, implying purchases must have been made. Considering the hypothetical nature of the AO's estimation and the desire to avoid multiplicity of litigation, the Tribunal, with the consent of the assessee's counsel, reduced the addition from Rs.8,84,160/- to Rs.4,00,000/-.
Key Issues
Whether the addition made by the AO on account of doubted purchases, based on a fixed profit rate due to lack of payment proof, was justified and correctly quantified.
Sections Cited
133(6)
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Income Tax Appellate Tribunal, DIVISION BENCH, ‘B’ CHANDIGARH
Before: SHRI RAJPAL YADAV & SHRI MANOJ KUMAR AGGARWAL
HYBRID HEARING O R D E R PER RAJPAL YADAV, VP
The assessee is in appeal before the Tribunal against the order of ld. Commissioner of Income Tax (Appeals) [in short ‘the CIT (A)’] dated 18.02.2025 passed for assessment year 2021-22.
The assessee has taken two grounds of appeal wherein it has been pleaded that ld. CIT (Appeals) has dismissed the appeal A.Y.2021-22 2 without providing any fair opportunity of hearing and also erred in confirming the additions made by the AO.
3. The brief facts of the case are that assessee, at the relevant time was trading in metal scrap. It has filed its return of income on 09.03.2022 declaring taxable income at Rs.1,42,480/-. The assessee had made purchases of Rs.13,98,15,072/- and declared sales of Rs.14,18,64,488/-. The AO issued Show Cause Notice directing the assessee to demonstrate the genuineness of purchases made by it. The assessee has filed complete details, on test check basis, the AO has issued notice u/s 133(6) of the Act to some of the parties. He made a reference of 16 parties on page No. 6 and 7 of the assessment order. Most of the parties have responded to the notices except two, namely, Hare Krishna Steel Tubes and Prem Bindal. Purchases from these 16 parties have been made at Rs.12,20,33,888/-. The AO, thereafter, took details in tabular form of 61 parties from whom total purchases have been made. The AO has observed that assessee has produced the bills of purchase for all the parties. It has also produced transportation proof of the parties, but it could not produce the details of payments qua 16 parties out of 61. The total purchases from these A.Y.2021-22 3 16 parties were to the tune of Rs.70,73,285/-. The AO has doubted the genuineness of these purchases. Hence, he applied a profit rate of 12.5% on these purchases (12.5% of Rs.70,73,285/-). In this way, AO has worked out an extra profit alleged to have been earned by the assessee at Rs.8,84,160/-. Addition of this amount has been made to the total income of the assessee.
Appeal to the ld. CIT (Appeals) did not bring any relief to the assessee because assessee did not respond to the notices and CIT (Appeals) has dismissed the appeal ex-parte for want of prosecution.
With the assistance of the ld. Representative, we have gone through the record carefully. There is no dispute with regard to the fact that assessee has declared sale of Rs.14,18,64,488/-, thus AO has not doubted quantity details of the sales. It means assessee must have made purchases for achieving these sales. The only question could be that instead of showing the purchases from ‘A’, actually goods could have been purchased from ‘B’ because without purchases, sale figure could not be achieved. Thus, actually goods have been purchased. In that modus-operandi, assessee may have earned some extra profit. These observations A.Y.2021-22 4 are only hypothetical. There is no concrete evidence available on the record, nor the AO could unearth anything. The simple reason for disbelieving the purchases to this extent is that payment proof could not be given by the assessee for certain parties. We could have remanded this issue back to the AO for verifying the payment proof, but in our opinion, this would only enhance the multiplicity of litigation. It is pertinent to observe that whenever any profit is being estimated, then some guess work is always involved. The AO has worked out estimation at 12.5% without considering the profit margin declared by the assessee or some similarly situated assessees. He has not even find out what could be the possible profit margin to an assessee engaged in trading of scrap. Therefore, faced with the above situation, we put to the ld. counsel for the assessee that if the addition worked out by the AO is partially modified, then what would be the stand of the assessee. The ld. counsel for the assessee has agreed that if this addition is reduced to Rs.4 lacs as against Rs.8,84,160/-, then assessee would have no objection because there is no necessity to undergo various rounds of litigation whose cost must have been more than that. Th assessee has not filed any Paper Book before the Tribunal or sought any permission to lead additional evidence. Therefore, A.Y.2021-22 5 it is not practically possible for us to determine exact profit involved in these purchases.
Considering the above , we are of the view that ends of justice would meet if addition is reduced to Rs.4 lacs as against Rs.8,84,000/- made by the AO. Accordingly, appeal of the assessee is partly allowed.
In the result, appeal is partly allowed,
Order pronounced on 25.09.2025.