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TMI Blog2017 (12) TMI 928X X X X Extracts X X X X X X X X Extracts X X X X ..... 61(hereinafter 'the Act'). 2. The first common issue in all these appeals of assessee is as regards to the order of CIT(A) confirming the action of the AO in reopening the assessment under section 147 of the Act as well as on merits also holding that the purchases are bogus. For this assessee has raised identical worded grounds in all the years and hence, will take up the facts and ground from AY 2008-09 in ITA No. 4688/Mum/2016 i.e. ground No. 1 to 3 reads as under: - "1. Disallowing a total sum of Rs. 1,25,07,876/- in the reassessment order passed under section 143(3) r.w,s 147 of the Income Tax Act in respect of purchases made from the following parties on the alleged ground that genuineness of the said purchases could not be established. 2. That the Ld. CIT(A) ought to have appreciated that your petitioners' case for the aforesaid yea had gone through a detailed scrutiny and the then assessing officer after satisfying himself with regards to the expenses above S laths passed the order under section 143(3) of the income tax act. Accordingly, the 01(A) ought to have appreciated that the said reopening proceedings are invalid and bad in law on account of the fact: - a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; NB Enterprises 11,33,380 Neelam Enterprises 6,17,915 Sagar Enterprises 39,780 Bath Classic 4,89,172 Sampark Steels 17,53,309 Prayan Trading Co. 16,28,635 2,57,865 Karma Ispat 16,56,887 8,29,965 Total 1,25,07,876 36,92,101 50,37,821 11,55,450 5. In all these years, the AO received information from DGIT investigation Mumbai, who in turn received information from Maharashtra Sales Tax Department that the assessee has obtained bogus purchases from hawala dealers, who without actual sale of goods issuing mere bills and the assessee is obtaining these bills. It was the contention of the Revenue that these bills have been used for obtaining bogus purchase bills, so as to reduce the profit of the assessee and pay lower taxes. The AO recorded this fact in Para 4.2 as under: - "4.2 Further earlier a Survey under section 133A was conducted at the business premises of the assessee on 17-01-2013 by DDIT (Inv), Unit-III (2), Mumbai. The reason for conducting the survey was that as per the informat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consistently applied by the Tribunal in other cases. When a query was put to the learned Sr. Departmental Representative, he also fairly agreed for a reasonable percentage. 9. We find that Hon'ble Gujarat High Court in the case of CIT vs. Smith P. Seth (2013) 356 ITR 451 (Guj), wherein it has applied the profit rate at the rate of 12.5% of the bogus purchases in similar circumstances. Accordingly, we also apply the profit rate of 12.5% of the bogus purchase and direct the AO to compute the income of all these AYrs. and not the entire bogus purchases are to be added. Accordingly, we allow these appeals of assessee partly. 10. In regard to another issue of Purchases disallowed by AO of capital asset in AY 2010-11 and 2011-12, the same finding will apply and AO will disallow 12.5% of the purchased price of these capital goods and balance will be taken to capital account and accordingly, depreciation will be allowed on the assets. This issue of the assessee's appeals is partly allowed as indicated above. 11. The next issue in these cross appeals of assessee and that of Revenue in ITA No. 3410 and 3784/Mum/2015 for AY 2010-11 is as regards to the order of CIT(A) restricting the disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made capital infusion of Rs. 200 crores during the year relevant to AY 2009-10 and as a result thereof on 04.02.2009 there remained no overdraft balance in assessee's bank account. The term loan too was paid off. Therefore, the source of all those investments, which were made prior to that date 104.02.20091 even by utilizing the loan fund, will have to be taken as on 04.02.2009 and onwards as if made out of its own fund. From the balance sheet it is noted that on 31.03.2010 the total share capital and reserves town fund) amounted to Rs. 231.52 crores; the outstanding Loan amounted to Rs. 14.56 crores; and the investment stood at Rs. 81.55 crores. Thus, it is noted that the own fund of the assessee was much higher than the investments. Further, the investment made after 04.02.2009 were either from its current account I or from overdraft account [in Vijaya Bank]. But on the dates when it was made from I overdraft account, there was a positive balance and therefore its claim that the disallowance of interest expenditure u/s 14.4 could not be made this year is acceptable. In view of these facts, I am of the considered view that disallowance as per Clause (ii) of Rule 8D(2) was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his he stated that the assessee has calculated the disallowance by calculating 5% of the salary of the CFO, 50 % of the salary of one accounts executive and 79.1% of bank charges paid to ABN Amro Bank through which the investment were routed. Further, the assessee suo moto has disallowed a sum of Rs. 2,26,732/-, the expenses relatable to exempt income. The learned counsel took us through the relevant expenditure booked in the profit and loss account and argued that there is no item which can be co-related with the investment giving exempt income. We find force in the arguments of the learned counsel, which is apparent from the records and hence, we delete the disallowance and allow this issue of assessee's appeal. 15. The next issue in ITA No.5552/Mum/2015 for AY 2011-12 in assessee's appeal is as regards to the order of CIT(A) confirming the disallowance of expenses relatable to exempt income under section 14A of the Act read with Rule 8D of the Rules amounting to Rs. 36,95,549/-. 16. At the outset, Ld Counsel for the assessee stated that the AO has simply disallowed the expenses relatable to exempt income under Rule 8D(2)(iii) of the Rules amounting to Rs. 36,95,549/- without r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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