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2017 (8) TMI 916 - AT - Income TaxReopening of assessment - additions u/s 69C - purchases made from the so-called hawala operators - reasonable profit estimation - Held that:- Though the assessee has produced certain details to prove the purchases from the said parties as genuine, in view of the fact that the assessee could not prove the existence of the parties and also could not rebut the finding of the AO in the backdrop of report of Maharashtra Sales-tax department, the said purchases could not be accepted as genuine. But keeping in view the fact that the AO has not doubted sales declared by the assessee and also not pointed out any defects in the books of account or stock registers, a reasonable inference can be drawn that the assessee has obtained bills from the hawala operators to cover up the purchases from the grey market. What needs to be taxed is only the profit element embedded in such purchases and not entire purchases shown to have been made from those hawala operators. Reasonable profit in case of these transactions - Various Courts and Tribunals have upheld estimation of net profit ranging from 12.5% to 25% depending upon facts of each case. The Hon’ble Gujarat High Court in the case of Vijay Proteins Ltd vs CIT (2015 (1) TMI 828 - GUJARAT HIGH COURT) has upheld estimation of net profit at 25% on bogus purchases. The Hon’ble Gujarat High Court in the case of Smit P Sheth (2013 (10) TMI 1028 - GUJARAT HIGH COURT) has observed that no uniform yardstick can be applied to estimate net profit because of varied nature of business. Therefore, we are of the view that only profit element embedded in bogus purchases needs to be taxed and not the entire purchases from the above parties. The CIT(A), after considering the relevant facts of the case has estimated the net profit at 12.5% on total bogus purchases. We do not find any infirmity in the order of CIT(A); hence, we are inclined to uphold the order of CIT(A) and dismiss the appeals filed by the revenue. We direct the AO to estimate net profit of 12.5% on bogus purchases.
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