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TMI Blog2017 (10) TMI 1633X X X X Extracts X X X X X X X X Extracts X X X X ..... e has made purchase from the grey market. Making purchases through the grey market gives the assessee selling on account of non-payment of tax and others at the expense of the exchequer. In such situation, in our considered opinion, on the facts and circumstances of the case the 15% disallowance out of the bogus purchases meets the ends of justice. We uphold the order of CIT(A) and direct that the disallowance be limited to 15% of the bogus purchases. Appeal filed by the Revenue stands dismissed. X X X X Extracts X X X X X X X X Extracts X X X X ..... d and kept on the public domain by the Sales Tax Department. Assessment, u/s 143(3) r.w.s 147 of the I.T. Act, 1961 was completed by the Ld. AO on 25-03- 2015, determining the total income at Rs. 6,64,24,380/-. 5. During the course of assessment proceedings, to ascertain the genuineness of purchases shown in the accounts, AO asked to furnish a copy of notice u/s 302 issued by the Sales tax Department and copy of VAT audit report. On verification it is found that the assessee purchased the goods from two parties labour register, stock register, construction register along with the books of accounts to verify the purchases from the 2 parties and the consumption of such material purchased from them. The assessee failed to produce consumption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant failed to furnish the consumption register for the goods claimed to have been purchased. In view of the same, AO rejected the books of accounts of the appellant and the total amount of purchases made from the two parties was added to the total income, instead of making an estimation of profit. When the completeness and correctness of the books of accounts is questioned, instead of adding the total amount of purchases from the two parties, AO should have gone for the estimation of profit on the total sales. In this nature of business i.e. construction, it is practically not possible one to one correlation of purchases and sales as the purchases will go into the construction, as submitted by the appellant. Maintaining the quanti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned the evidence on record and concluded that the assessee did produce cloth and sell finished goods, the entire, amount covered under such purchase would not be subjected to tax and only the profit element embedded therein was to be taxed. While coming to the above conclusion, the Hon'ble High Court also relied on the decision in the case of Sanjay Oil Cake Ind. 316 ITR 274 (Guj). 6.9 In Sanjay Oilcake Industries v. Commissioner of Incometax [2009] 316 ITR 274 (Guj), it was held as under: "12. Thus, it is apparent that both the Commissioner (Appeals) and the Tribunal have concurrently accepted the finding of the Assessing Officer that the apparent sellers who had issued sale bills were not traceable. That goods were received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pparent sellers. Hence, the estimate made by the two appellate authorities does not warrant interference. Even otherwise, whether the estimate should be at particular sum or at a different sum, can never be an issue of law." 6.10 Similarly, in yet another decision of Hon'ble Gujarat High Court in the case of CIT vs. Simit Sheth (2013) 38 Taxmann.com 385 (Guj), Hon'ble Court was seized with a similar issue where the A.O. had found that some of the alleged suppliers of steel to the assessee had not supplied any goods but had only provided sale bills and hence, purchases from the said parties were held to be bogus. The AO, in that case added the entire amount of purchases to gross profit of the assessee. Ld. CIT(A) having found tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt case which are similar to the facts of the case of CIT vs. Simit Sheth (supra), respectfully following the decision in that case with regard to the estimation of profit, and also considering the fact that the appellant is in the construction business where the margin is higher than the case referred above, AO is directed to restrict the addition @15% of the nongenuine purchases of Rs. 64,20,135/-, made from the two parties." 7. Against the above order, assessee is in appeal before the ITAT. 8. We have heard both the Counsel and perused the records. We find that in this case addition has been made on the basis of information from the Sales Tax Department that the suppliers are bogus. The Assessing Officer has not issued any notice to t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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