2016 (12) TMI 1630 - AT - Income Tax

N.P. determination - disallowance made @ 15% of total purchase - Held that - As perused the material available on record and gone through the orders of the authorities below in our considered opinion the same issue of supplying of waste-paper to papermills in case of various assessees have been considered by ld. CIT(A). Similar issue has been upheld by ITAT in the case of Tayab Yunus Barudgar 2016 (5) TMI 1288 - ITAT AHMEDABAD we see no infirmity in the order of ld. CIT(A) deleting the disallowance made @ 15% of total purchase and directed the learned assessing officer to adopt Net Profit at the rate of 2% of the turnover for determining the taxable income in the case of the appellant.

Summary

Issues:
1. Disallowance of purchase amount made by the Assessing Officer.
2. Adoption of Net Profit rate for determining taxable income.

Analysis:

Issue 1: Disallowance of Purchase Amount
The Revenue appealed against the deletion of the disallowance of a specific amount made by the Assessing Officer. The assessee, in response, argued that the purchases were made from unorganized sectors and the lack of proper evidence was due to the nature of the business. The sales were accepted, and payments were received from paper mills via cheques. The Assessing Officer disallowed 15% of total purchases as unverifiable. The Commissioner of Income Tax (Appeals) agreed that purchases were not fully substantiated but directed the Assessing Officer to adopt Net Profit at 2% for determining taxable income. It was noted that similar cases in the Central Circle, Surat, were assessed with an addition of 0.5% to 0.75% of turnover as income. The Commissioner considered the peculiar nature of the business and directed the adoption of Net Profit at 2% instead of the 1.08% disclosed by the appellant. The Tribunal upheld this decision, emphasizing the high volume, low margin nature of the business, and the lack of possibility for a 15% margin in this trade.

Issue 2: Adoption of Net Profit Rate
The Assessing Officer had initially disallowed a portion of the purchase value, but the Commissioner estimated the net profit based on comparable cases in Vapi. The Tribunal noted that similar issues had been addressed in other cases, including one involving Tayab Yunus Barudgar. In that case, the Tribunal upheld the Commissioner's decision, stating that there was no evidence of bogus or inflated purchases and that the profit margin of 15% was not feasible. The Tribunal found no reason to interfere with the Commissioner's order, considering the Gross Profit and Net Profit ratios shown by the assessee. The Tribunal dismissed the Revenue's appeal and the assessee's Cross Objection, as the issue had been thoroughly considered and decided in previous cases.

In conclusion, the Tribunal upheld the Commissioner's decision regarding the disallowance of purchase amount and the adoption of the Net Profit rate for determining taxable income, based on the specific nature of the business and comparable cases in the region.