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2020 (3) TMI 686 - ITAT MUMBAIReopening of assessment u/s 147 - Bogus purchases u/s 69C - addition on account of peak credit - HELD THAT:- At the time of formation of belief, the only requirement would be that there must be certain prima-facie material before Ld. AO which would suggest possible escapement of income. Nothing more would be required at that stage to reopen the case. Of course, after going through the factual matrix, it would be open for Ld. AO to make additions by invoking any particular statutory provisions which would best apply to given factual matrix. Therefore, we are not convinced with legal grounds raised by Ld. AR and hence, decline to accept the same. The additional ground raised by the assessee stands. No discrepancies have been found in quantitative details as well as stock register maintained by the assessee for assessment year under consideration as well as for subsequent AY 2011-12. The same is evident from financial statements as well as quantum assessment order for AY 2011-12, as placed on record. From the perusal of these documents, it is quite discernible that the figures of opening stock as well as sales in AY 2011-12 has been accepted while framing assessment order and these figures have not been disturbed. The aforesaid position of circular transactions has also been accepted by Ld.AO in para 6.6 of quantum assessment order wherein it has been accepted that the assessee has made circular transactions to the extent of ₹ 1163.89 Lacs. The said factual matrix has also been elaborated by us in preceding para 2.11. These facts would lead us to inevitable conclusion that the transactions, to that extent, were to be considered as mere paper entries and the same were to be disregarded while making the additions in the hands of the assessee. If these transactions were removed from assessee’s financials, there would be no impact on the profit for this year as well as subsequent year. AR’s plea, to that extent, were to be accepted and no such additions against these purchases would be sustainable in the hands of the assessee. So far as the balance purchase for the year under consideration is concerned, it is noted that the assessee has made cheque payment of ₹ 382.72 Lacs to one of the stated entities during the year and as per the statement of the director, cash was generated and the material was purchased in cash from the open market. To regularize the cash purchases, bills were procured from stated entities. We are of the considered opinion that the additions, which were to be sustained in the hands of the assessee against these purchases, would be to account for profit element embedded in such purchase transactions to factorize for profit earned by assessee by procuring goods from grey / unorganized market. The method of peak credit as adopted by Ld. AO would not be a suitable method under the circumstances rather an adhoc estimated addition would meet the cause of justice. Keeping in view the assessee’s nature of business, we estimate the additions at 5% of balance purchases of ₹ 3,84,03,652/- which comes to ₹ 19,20,183/-. The balance addition stands deleted. The method of estimation would be in line with the recent decision in Pr.CIT V/s Rishabhdev Tachnocable Ltd. [2020 (2) TMI 662 - BOMBAY HIGH COURT] wherein Hon’ble Court has approved the estimated additions on similar lines, as sustained by Tribunal. To summarize, the addition to the extent of ₹ 19,20,183/- stand confirmed and the balance additions stands deleted
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