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Pr. Commissioner of Income Tax-I Versus Abhishek Exim Pvt Ltd.

2016 (7) TMI 912 - GUJARAT HIGH COURT

Disallowance on account of unverifiable purchases - Held that:- Assessing Officer has disallowed 10% of the purchases on an ad-hoc basis, whereas the Commissioner (Appeals) has deemed it proper to reduce the disallowance to 2% after considering the gross profit rate and net profit rate. In either case, the disallowance is based on an estimate. While there is no basis for the estimate adopted by the Assessing Officer, there is some basis in the estimate adopted by the Commissioner (Appeals). Unde .....

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Ms. Justice Harsha Devani ) 1. Both these appeals arise out of a common order dated 29th September, 2015 passed by the Income Tax Appellate Tribunal, D Bench, Ahmedabad (hereinafter referred to as the Tribunal ) and hence, the same were heard together and are disposed of by this common order. 2. The appellant-revenue has challenged the above referred order passed by the Tribunal in ITA No.1195/Ahd/2010 and ITA No.2748/Ahd/2011 by proposing the following two questions, stated to be the substanti .....

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uthorized dealers? [B] Whether on the facts and the circumstances of the case and in law, the ITAT has erred in considering that disallowance of merely 2% to total purchases will be sufficient to cover the higher margin which assessee must have received in its business operation on account of purchases from unauthorized dealers without taking into consideration the decision of the Hon ble Jurisdictional High Court in the case of Vijay Proteins Ltd Vs. CIT reported in [2015] 58 taxmann.com 44(Guj .....

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see had not discharged the onus of proving the transactions in respect of purchases to the extent of ₹ 36,88,350/- and ₹ 8,90,055/- for assessment years 2007- 08 and 2008-09 respectively, and held these transactions to be non-genuine. He, therefore, disallowed 10% of the purchase amount on the basis of estimate. 4. The assessee carried the matter in appeals before the Commissioner of Income Tax (Appeals). In relation to assessment year 2007-08, the Commissioner (Appeals) found that d .....

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nce the disallowance had been made mostly in the purchases of garments, the Commissioner (Appeals) noted that the gross profit rate in the garments division is also higher at 15.29% as compared to 11.91% in the preceding year. He further noted that the Assessing Officer while disallowing the expenses at the rate of 10% had not given any basis for adopting such percentage. While agreeing with the findings of the Assessing Officer that the assessee had not been able to furnish all the correct addr .....

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ppeal before the Tribunal, which concurred with the findings recorded by the Commissioner (Appeals) and dismissed the appeal. 6. Mr. Sudhir Mehta, learned Senior Standing Counsel for the appellant, assailed the impugned orders by reiterating the findings recorded by the Assessing Officer. It was submitted that the assessee had failed to produce the parties or furnish their addresses or whereabouts. Thus, the evidence produced by the assessee was not reliable. It was pointed out that the Assessin .....

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ces, there was no justification for reducing the disallowance made by the Assessing Officer at the rate of 10% of the total purchases which was very reasonable. It was submitted that in the case of Vijay Proteins Ltd v. Commissioner of Income Tax, [2015] 58 taxmann.com 44 (Gujarat), this High Court, in a similar case, has held that disallowance to the extent of 25% is justified. It was, accordingly, urged that the impugned order does give rise to a substantial question of law as proposed or may .....

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ad restricted the disallowance to 2% of the purchases as against 10% made by the Assessing Officer. 8. As can be seen from the assessment order, the Assessing Officer has recorded that the assessee failed to produce the parties from whom the purchases were shown to have been made in the record maintained by the assessee. He, accordingly, was of the view that the purchases made by the assessee are not genuine. The Assessing Officer, however, found that the sales in terms of exports had been effec .....

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icer has not adopted any specific basis but has merely adopted an ad-hoc basis of 10%, which in his opinion was fair and reasonable. 9. The Commissioner (Appeals) while reducing the disallowance to 2% has recorded that the gross profit rate as well as net profit rate of the assessee was higher as compared to the previous year. That most of the disallowance was in the purchase of garments, whereas the gross profit rate of the garment division was higher at 15.29% as compared to 11.91% in the prec .....

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the gross profit which was already higher in the year under consideration as compared to the preceding year, the disallowance of purchases at the rate of 10% would go to further increase the gross profits, whereas the Assessing Officer, has not adopted any basis for disallowance of 10% of the purchases. The Tribunal in the impugned order has concurred with the findings recorded by the Commissioner (Appeals). 10. Thus, as is evident from the facts noted hereinabove, the Assessing Officer has dis .....

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