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TMI Blog2016 (5) TMI 1288X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit and Net Profit ratio shown by the assessee, estimated the Net Profit at 2% as against 1.10% disclosed by the assessee.. Before us, Revenue has not brought any material on record to controvert the findings of ld.CIT(A). Looking to the totality of the facts of the present case, we do not see any reason to interfere with the order of the ld.CIT(A). Thus, this ground of Revenue is dismissed. Unexplained sundry creditors - Held that:- We find that the ld.CIT(A) while deleting the addition has given a finding that the credit balance pertains to three companies and during subsequent year, the money was paid to the vendors. He has further given a finding that it is not the case of unexplained credit, but a case of trade balance/credits at the end of the financial year. Before us, Revenue has not brought any material to controvert the findings of the ld.CIT(A). We therefore find no reason to interfere with the order of ld.CIT(A). Thus, this ground of Revenue is also dismissed. - I.T.A. No.1351/Ahd/2012 and Cross Objection No.155/Ahd/2012 - - - Dated:- 27-5-2016 - Shailendra Kumar Yadav, Judicial Member And Anil Chaturvedi, Accountant Member. Revenue by : Shri Narendra Singh, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y creditors. 3. It is therefore prayed that the order of the Learned Commissioner of Income tax (Appeals) be upheld to the above extent. 4. On appreciation of the facts and circumstances of the case the Learned Commissioner of Income tax (Appeals) ought not to have directed the learned assessing officer to adopt Net Profit at the rate 2% of the turnover for determining the taxable income in the case of the appellant as against 1.10% as disclosed by the appellant in his return of income. 3. At the outset, none appeared on behalf of assessee nor any adjournment application was filed on behalf assessee. We therefore proceed to decide the appeal ex-parte qua the assessee. We first take up Revenue s appeal in ITA No.1351/Ahd/2012 for AY 2009-10. 3.1. First ground is with respect to directing the addition be restricted at 2% of turnover. 3.2. During the course of assessment proceedings, AO noticed that assessee had made purchases of waste-paper from unregistered dealers, purchases aggregated to ₹ 2,50,73,632/-. The assessee was asked to produce purchase bills which assessee failed to produce. Thereafter, the assessee was asked to show-cause as to why 25% of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per. The waste paper traders like the appellant obtain VAT registration and other required government permissions and disclose to the VAT department their turnover and other details on a regular basis through mandatory VAT returns and the VAT authorities make an assessment under the VAT law and determine the tax liability on an year to year basis. 6.1. The disallowance was made by the AO mainly because the appellant could not produce proper evidences in support of the total purchases made and according to the AO the nature of waste paper business enables paper mills to reduce their incidence of taxation. Admittedly the nature of business and all factual aspects of the same have been disclosed by the appellant and has not been disputed by the AO. Also admittedly the AO has doubted the purchases made by the appellant but has not brought on record any instance of waste paper purchases made by the customers of the appellant (Paper Mills) as being found to be bogus or inflated. The AO has not disputed the nature of business carried out by the appellant and has not pointed out any instance of tax planning by any paper mills specifically to form an opinion as such. The appellant is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts I am unable to agree with the AO that an adhoc addition of 15% of the purchase value shall be made the determine the fair quantum of taxable profit. 6.4. As pointed out by the appellant the Central Circle Surat has completed the assessment of similar traders by estimating the gross profit and enhanced the rate between 0.5% to 0.75 % being the facts similar to the appellant. This indicates that this trading activity is high volume low margin business. I have also spared my thoughts on various aspects of the business activities such as i) what are the items covered under this trade, ii) source of waste papers and other items traded by the appellant, iii) how cost of the goods is determined, iv) modusoperandie of the trading activities, v) methods of accounting followed and vi) the Sales -Purchase ratio. I have also perused the copy of the assessment order passed by Dy. CIT, Central Circle - 3, Surat in the case of M/s. Paper Sales Corporation wherein the AO had made G.P. addition of 0.50% to 0.75%. The market rule in this trade is that as the turnover increases the G.P./N.P. declines marginally. Considering the case in totality and the nature of trade, it is safe to say t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t proceedings, assessee was asked to furnish the confirmation from the creditors. Since the assessee had failed to furnish confirmations from the parties having aggregate credit balance of ₹ 22,29,345/-, the AO disallowed ₹ 22,29,345/- by considering it as unexplained credits. Aggrieved by the order of the AO, assessee carried the matter before the ld.CIT(A), who decided the issue in favour of assessee by holding as under:- 6.4 DECISION:- I have perused the findings of the AO and the submissions made before me by the appellant. The short issue here is whether such amount can be disallowed ipso-facto because the appellant could not furnish the confirmations from the creditors. The AO observed that the appellant failed to produced confirmations from the creditors and therefore, made addition as unexplained cash credits. On the other hand the Id. AR submitted that the credit balance pertains to 3 companies and during the subsequent year as soon as the money was received from the paper mills, the outstanding amount was paid to the vendors. This is the nature of business and invariably payments are made to the creditors for supply of waste paper only after the same is r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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