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2016 (2) TMI 561 - ITAT AHMEDABAD

2016 (2) TMI 561 - ITAT AHMEDABAD - TMI - N.P. rate determination - addition on account of unverifiable purchases - Held that:- There is nothing on record to demonstrate as to what was the turn over and the net profit of the Assessee in immediately preceding and subsequent years which could demonstrate the trend of NP/GP earned by the Assessee in those years. We are further of the view that in the present case, it would not serve the purpose if the matter is remanded back to decide the issue for .....

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ly. - Decided in favour of revenue

Addition under the head "Indirect Expenses" - Held that:- CIT(A) while deleting the addition has noted that since he had directed the adoption of net profits @ 2% further adhoc disallowance would result into double disallowance. Before us, apart from other findings, the observation and finding of CIT(A) of double disallowance has also not been controverted by the Revenue. - Decided in favour of assessee

Addition u/s.68 - Held that:- CIT(A) .....

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.R. For the Respondent : None ORDER Per Anil Chaturvedi, Accountant Member These two appeals of which one is filed by Revenue and the other i.e. Cross Objection by Assessee are against the order of CIT(A), Valsad, dated 30.03.2012 for the assessment year 2009-10. 2. The relevant facts as culled out from the materials on record are as under: 3. The Assessee is an individual stated to be engaged in the business of trading of kraft waste paper. Assessee electronically filed his return of income for .....

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also filed the C.O. The grounds raised by the Revenue reads as under: "(i) On the facts and circumstances of the case, and in law, the learned CIT(A) has erred in directing Assessing Officer to adopt 2% NP. (ii) On the facts and circumstances of the case, and in law, the learned CIT(A) has erred in deleting the addition of ₹ 1,79,482/- made on account of disallowance of expenses. (iii) On the facts and circumstances of the case, and in law, the learned CIT(A) has erred in deleting the .....

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s purchases. Learned CIT (Appeals) deleted such addition but estimated N.P. of ₹ 17,29,564/- on estimate basis of 2% and thus made addition of ₹ 8,98,436/-." 4. On the date of hearing none appeared on behalf of Assessee nor any adjournment application was filed on behalf of Assessee. We, therefore, proceed to dispose of the appeal ex parte qua Assessee, on the basis of material available on record. 5. The 1st ground raised by the Revenue and the ground raised by Assessee in C.O. .....

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roduce the purchase bills for verification but only submitted the break up of purchases as URD purchases and RD purchases. Assessing Officer, therefore, concluded that in the absence of details of purchases, Assessee has failed to substantiate the genuineness of purchase. He accordingly considered 15% of the total purchase amounting to ₹ 1,26,08,324/- as being non genuine and unverifiable and added the same to the income. Aggrieved by the order of Assessing Officer, Assessee carried the ma .....

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waste paper so collected to the middleman traders like the appellant. The appellant purchase such waste paper collected on a day to day basis, accumulate the same in quantities and thereafter sell the same to the end users i.e paper mills. The paper mills purchases these items in quantities from the market consisting of the traders like the appellant at the first level and raddiwallas in the second level. The purchase price of waste paper is fixed by the Gujarat Paper Mills Association (GPMA) a .....

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sclose to the VAT department their turnover and other details on a regular basis through mandatory VAT returns and the VAT authorities make an assessment under the VAT law and determine the tax liability on an year to year basis. 6.1 The disallowance was made by the AO mainly because the appellant could not produce proper evidences in support of the total purchases made and according to the AO the nature of waste paper business enables paper mills to reduce their incidence of taxation. Admittedl .....

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ny paper mills specifically to form an opinion as such. The appellant is a trader in an unorganized sector the AO has not doubted the sales figure disclosed by the appellant. Considering that the paper mills association has fixed the price for purchases of waste paper from the trader the scope for manipulated sale price is not established nor can be inferred. There is no circumstantial evidence to conclude that the waste paper supplier have higher than normal gross margin on sales only because t .....

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appellant had furnished quantitative details of purchases and stock along with the tax audit return and has disclosed a sum of ₹ 20,72,841/-as gross profit which works out to 2.40 % of the total turnover. On consideration of the nature of the business the assessing officer doubted the profitability of the trading results of the appellant. As a result the AO completed the assessment by disallowing a portion of the purchase value of the appellant. I am of the considered opinion that waste p .....

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t the business, the inferences have to be derived from all the facts in entirety. Admittedly there is no dispute as regards the quantum of sales. There is no possibility of waste paper traders like the appellant acting as conduits for tax planning on behalf of the paper mills. The AO himself has observed that the purchase price is fixed by the GPMA. The traders like the appellant are dependent upon a few paper mills for their business. In view of this facts I am unable to agree with the AO that .....

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i) what are the items covered under this trade, ii) source of waste papers and other items traded by the appellant, iii) how cost of the goods is determined, iv) modus-operandi of the trading activities, v) methods of accounting followed and vi) the Sales -Purchase ratio. I have also perused the copy of the assessment order passed by Dy. CIT, Central Circle - 3, Surat in the case of M/s. Paper Sales Corporation wherein the AO had made G.P. addition of 0.50% to 0.75%. The market rule in this tra .....

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e, in my considered view, the N.P. estimated at 2% as against 0.95% disclosed by the appellant will meet the justice. Accordingly, the AO is directed to adopt NP at the rate 2% for determining the taxable income in this case. This ground of appeal is partly allowed. 5.2 Aggrieved by the order of ld. CIT(A), Revenue and Assessee both are in appeal before us. 5.3 Before us, ld. D.R. pointed to the various observations made by the Assessing Officer and supported the order of Assessing Officer. 5.4 .....

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arising out of the impugned purchases and on the other hand out of the total purchases considered 15% of purchases to be as non genuine. We find that Ld. CIT(A) after considering the submissions of the assessee and the assessment order passed in the case of Paper Sales Corporation, another assessee, has estimated the income by applying the Net Profit rate at 2% for determining the taxable income. We also find that ld. CIT(A) for arriving at the conclusion of 2% of the net profit rate to be the a .....

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ck to decide the issue for estimation of income afresh in view of the fact that the matter is almost five years old and would result into prolonging the litigation and delay in attaining finality to the issue and more so even in that case, the income will have to be estimated. Considering the totality of the facts, we are of the view that in the present case, the ends of justice shall be met if the income is estimated by applying the Net Profit Rate of 2.5% as against 2% considered by the CIT(A) .....

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of expenses. Aggrieved by the order of Assessing Officer, Assessee carried the matter before the CIT(A) who deleted the addition by holding as under: "8. I have perused the findings of the AO and the submissions made before me by the appellant. Admittedly the AO has not rejected the books result as disclosed by the appellant. Expenses cannot be disallowed in an adhoc basis. The AO not recorded any concrete finding for the disallowance made. I also find merit in the decision of the Honorabl .....

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.R. supported the order of Assessing Officer. 6.3 We have heard the ld. D.R. and perused the material on record. We find that ld. CIT(A) while deleting the addition has noted that since he had directed the adoption of net profits @ 2% further adhoc disallowance would result into double disallowance. Before us, apart from other findings, the observation and finding of CIT(A) of double disallowance has also not been controverted by the Revenue. In view of these facts, we find no reason to interfer .....

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