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TMI Blog2017 (10) TMI 1256X X X X Extracts X X X X X X X X Extracts X X X X ..... ded against revenue. - I.T.A. No. 5357/Mum/2015, I.T.A. No. 5358/Mum/2015 And I.T.A. No. 5359/Mum/2015 - - - Dated:- 9-10-2017 - Shri D.T. Garasia (JM) And B.R. Baskaran (AM) For The Assessee : None For The Department : Shri V. Vidhyadhar ORDER Per Bench :- These three appeals filed by the Revenue are directed against a common order dated 27.8.2015 passed by the learned CIT(A)-Thane and they relate to A.Ys. 2009-10 to 2011-12. 2. All these appeals were heard together since the issues urged in these appeals are identical in nature. Accordingly, these appeals are being disposed of by this common order, for the sake of convenience. 3. None appeared on behalf of the assessee and hence we proceed to dispose of these appeals ex-parte, without presence of the assessee. 4. We heard learned Departmental Representative and perused the record. The Revenue is aggrieved by the decision of the learned CIT(A) in not fully sustaining addition relating to bogus purchases and sales promotion expenses made by the Assessing Officer in all the years under consideration. 5. The assessee is engaged in the business of trading in electric and hardware materials. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act and reported that no business activity was being carried out at any of the addresses mentioned in respect of all these parties. The AO asked the appellant to produce the parties before him for examination, which was not (lone. The AO therefore, after rejecting the books of accounts of the appellant u/s. 145(3) of the I.T. Act for not being complete and correct, added the amount of ₹ 50,09,091/- to the appellant's income by treating all such purchases as bogus purchases. 6. The appellant in response to this addition submitted that complete name and address of the parties had been supplied to the AO. The copies of invoices in respect of all these purchases and ledger accounts of all the parties were filed before the AO. Further, the payment to all such parties had been made through cheque. The appellant filed the following comparative chart of Gross Profit and Net profit for the year under consideration and two preceding and succeeding years A/c. Year 2008-09 A/c. Year 2009-10 A/c. Year 2010-11 A/c. Year 2011-12 A/c. Year 2012-13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee did purchase the cloth and sell finished goods. In that view of the matter, as natural corollary, not the entire amount covered under such purchase, but the profit element embedded therein would be subject to tax.' Under the circumstances and the facts of case, we request to delete the addition made by the AO. Without prejudice the above, we further state that to buy peace of mind and to avoid prolonged strenuous, litigation at the proceedings we agrees that the law laid down by the Hon'ble Gujarat High Court in the case C1T-1 Vs. Simit P. Sheth 1TA No. 553 of 2012 order dated 16/01/2013 may be applied to the fact (. f our case and addition on account of profits suppres.ved due to this transaction by applying GP percentage may be brought to tax. 8. I have carefully considered the appellant's submissions, observations of the AO in the assessment order and the facts of the case. The appellant had shown purchases amounting to ₹ 50,09,091/- from various parties which appeared in the list of Salestax Department who had indulged in Hawala transactions i.e. providing only bills without there being any actual purchase or sale transaction. The AO c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amount of bogus purchases is added to the income of the appellant then the net profit rate for the year under consideration will go up to 7% and for the Assessment year 2009-10 and 2010-11 to 8% as can be seen from the chart below 10. Such a net profit rate is too high and not practical in the appellant's line of business considering that the appellant had shown a NP rate of 87% and 1.35% in two succeeding years (AY 2012-13 and 2013-14) where the issue of bogus purchases was not there. Moreover, if the sales were there, purchases have to be there as well as held by the ITAT, Bombay Bench 'B' in the case of Balaji Textile Industries Pvt. Ltd. Therefore, the only inference that can be drawn in that case is the appellant had made purchases in the open market and had obtained bills from the Hawala operators. In this process the appellant saved on the sales-tax / VAT and enhanced his profit by inflating the purchases. In this regard it is seen that in the case of CIT vs Simit P. Sheth, 356 ITR 451, Hon'ble Gujrat High Court held as under - The assessee in this case was engaged in the business of trading in steel on wholesale basis. Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oved. This being the position, the only question that survives is what should be the fair profit rate out of the bogus purchases which should be added back to the income of the assessee. The Commissioner adopted ratio of 30% of such total sales. The Tribunal, however, scaled down to 12.5%. We may notice that in the immediately preceding year to the assessment year under consideration the assessee had declared gross profit @ 3.56% of the total turnover. If the yardstick of 30%, as adopted by the Commissioner, is accepted GP rate will be much higher. In essence, the Tribunal only estimated the possible profit out of purchases made through non- genuine parties. No question of law in such estimation would arise. The estimation of rate of profit return must necessarily vary with the nature of business and no uniform yardstick can be adopted. 11. The appellant is also engaged in the business of trading/ reselling. Therefore, following the decision of the Hon'ble Gujarat High court in the case of CIT vs. Simith P. Sheth (supra) 12.5% of the amount of unproved purchases is disallowed to the appellant. Consequently, addition amounting to ₹ 6,26,136/- (being 12.5% of &# ..... X X X X Extracts X X X X X X X X Extracts X X X X
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