TMI Blog2017 (3) TMI 1180X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 23,685/-. We find that CIT(A) has restricted disallowance upto ₹ 10,669/-. In the result, the appeal of the assessee is dismissed. Addition on account of bogus purchase - GP addition - Held that:- Considering the decision of the Hon’ble Mumbai Bench of ITAT in the case of Madukant B. Gandhi (2010 (2) TMI 1211 - ITAT MUMBAI ) and the approx. average GP of 5% declared by the appellant, it is held that the net addition sustained in this case would be 12.5% [as per Simit Sheth (2013 (10) TMI 1028 - GUJARAT HIGH COURT) – 5% - 7.5%. - ITA NO. 1723/MUM/2015, ITA NO. 1817/MUM/2015 - - - Dated:- 21-3-2017 - SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER For The Appellant : Shri Purushottam Kumar For The Respondent : Shri Bhagirath Singh ORDER PER D.T. GARASIA, JM: The above are two cross-appeals filed against the order of CIT(A)-8, Mumbai dated 29.12.2014 which have arisen out of order passed by Assessing Officer dated 21.01.2014 under section 143(3) of the Income Tax Act, 1961 (in short the Act ) . ITA NO. 1723/MUM/2015 (Revenue s appeal) 2. At the outset, the ld. AR pointed out that the CBDT vide Circular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than the monetary limits specified in para 3 above or there is no tax effect: (a) Where the Constitutional validity of the provisions of an Act or Rule are under challenge, or (b) Where Board's order, Notification, Instruction or Circular has been held to be illegal or ultra vires, or (c) Where Revenue Audit objection in the case has been accepted by the Department, or (d) Where the addition relates to undisclosed foreign assets/ bank accounts. 9. The monetary limits specified in para 3 above shall not apply to writ matters and direct tax matters other than Income tax. Filing of appeals in other Direct tax matters shall continue to be governed by relevant provisions of statute rules. Further, filing of appeal in cases of Income Tax, where the tax effect is not quantifiable or not involved, such as the case of registration of trusts or institutions under section 12A of the IT Act, 1961, shall not be governed by the limits specified in para 3 above and decision to file appeal in such cases may be taken on merits of a particular case. 10. This instruction will apply retrospectively to pending appeals and appeals to be filed henceforth in High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lus and current account deposits are higher than cost of tax free investments, it has be presumed that the said investment is made by the assessee out of interest free funds. The CIT further held that if the funds are available both interest free and interest bearing then a presumption would arise that the investments made out of interest free funds generated or available with the company and if the interest free funds are sufficient to meet the investment then there is no need of disallowing any interest. 6. We find that before A.O. and CIT(A), the Assessing Officer has not given any working of expenditure in relation to earning of such exempt income with any supporting evidences. Therefore, the A.O. has applied of Rule 8D of the Income Tax Act and worked out the expenditure for earning the exempt income i.e. ₹ 23,685/-. We find that CIT(A) has restricted disallowance upto ₹ 10,669/-. In the result, the appeal of the assessee is dismissed. 7. The assessee has claimed to have made purchase from M/s. Shree Sundha Steels Pvt. Ltd., amounting to ₹ 33,65,085/-. The assessee in support of his claim has produce the copies of quotations, purchase order, tax invoice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re not bogus, but were made from parties other than those mentioned in books of accounts, only the profit element embedded in such purchases could be added to the assessee s income and as such the question of law arose in such estimation. While arriving at the above conclusion, the Hon ble Court also relied on the decision in the case of Vijay M. Mistry Construction Ltd. 355 ITR 498 (Guj) and further approved the decision of Ahmedabad Bench, ITAT in the case of Vijay Proteins 58 ITD 428. In the case of Vijay Proteins (supra), the Hon ble ITAT was seized with a case of bogus suppliers of oil cakes where 33 parties were found to be bogus by the departmental authorities even though payments were made to the said parties by cross cheques and in fact the A.O. in that case had brought adequate material on record to prove that the cross cheques had not been given to parties from whom suppliers were allegedly procured but these were encashed from a bank account in the name of another entity, possibly hawala dealer. Subsequently, the money deposited in that account was withdrawn in cash almost on the same day. The Tribunal however, held that if the purchases were made from open market wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Revenue in as much as the figure of sales has been accepted by the AO. At the same time the figures of purchases from these parties cannot be equally accepted. It is seen that the assessee had shown net profit rate at 2.13%. From the impugned order, it is seen that the rate of net profit from A.Y. 2001-02 to A.Y. 2005-06 ranged between 2.13 to 3.40%. In view of the fact that it has amply established that the purchases recorded in the books of account from these three parties were bogus with a view to suppress the profit, now need to zero in on the correct rate of net profit which could be applied under these circumstances. Section 44AF though not strictly applicable in this case, provides for 5% net profit rate on the total turnover. In our considered opinion, it will be just and fair if the net profit rate of 5% is applied on the goods sold which were allegedly purchased through these parties. On the conclusion of the hearing in this case, a proposal to this effect was made from the Bench. Both the sides finally agreed to it. We hold that the net profit rate of 5% be applied. On the application of such net profit rate, the effective addition will be ₹ 1,18,826/- as ..... 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