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ITO 4 (1) (4) Aayakar Bhavan, Mumbai Versus Manish Kanji Patel

Estimation of possible profit out of purchase made through non-genuine parties - Held that:- We found that in the instant case stock and sales and the quantity-wise stock and purchases / sales were tallied to the last KG therefore, we directed to take the A.O. 12% of the sales as gross profit accordingly re-compute the business of the assessee. We find that CIT(A) has directed to take the G.P. @ 10% of the sales but to cover up all the decisions of the books of accounts. We modify the order of t .....

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ovision of Section 41(1). We find that in the case of ITAT Mumbai in case of Maharashtra State Co-operative Consumer Federation [2011 (8)258 - ITAT MUMBAI] wherein it is held that in absence of contrary material placed by the Revenue for no such liability exist in the books of account or the assessee has obtain any benefit by case or any other manner merely because said liability was more than 5 years old it cannot be said that there was cessation of liability. Therefore, we are of the view that .....

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essee. 2. The following grounds are raised by the assessee in his appeal: 1. The Id CIT (A) erred in sustaining the disallowance of ₹ 43,63,221/- made u/s 40A(3A) of the IT Act. 2. The Id CIT (A) erred in not appreciating that no separate disallowance u/s 40A(3A) was called for when the books of account were rejected and income was directed to be computed on estimate basis. 3. The Id CIT (A) erred in not appreciating that the amount of ₹ 43,63,221/- was out of purchases of A Y 2008-0 .....

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common, for the sake of convenience, the same are taken from ITA No.7299/M/2014 for the A.Y. 2008-09 and are reproduced as under: "1(a). On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in directing to delete the addition of bogus purchases of ₹ 2,13,99,331/- without appreciating the fact that the AO, made detailed enquiry which had established that purchase bill were bogus and the purchase entries were just to inflate purchases and reduce profit. 1(b .....

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urchase of rejected stock of papers either locally or through imports. The assessee has purchased during the year the rejected stock of papers from M/s Navkar Enterprises and against total purchases from M/s Navkar Enterprises of ₹ 3,68,63,236/-, the assessee has made payment to M/s Navkar Enterprises during the year amounting to ₹ 1,07,26,432/-. As on 31.03.2009 the sum of ₹ 2,61,36,804/- was outstanding payable. During the assessment proceedings, the A.O. issued notice u/s 13 .....

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about M/s Navkar Enterprises, the department wrote letter to the Bank Manager, Bank of Baroda, Takurdwar Branch and out Bank Manager, Canara Bank, Thane Kopri Colony (East) Branch and obtained photocopies of both the sides of the cheques issued to M/s Navkar Enterprises towards purchase consideration. On the basis of the entries found in the assessee s Bank Book, it was found that the cheques issued to M/s Navkar Enterprises were encashed by various other entities. As per details found on Page .....

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s Navkar Enterprises where Tin No. mentioned as 27280504194V belonged to M/s Manv Impex. The Books of Account produced by the appellant on 06.12.2011 were impounded by the A.O. u/s 131 of the Income Tax Act. The A.O. that there were 15 Purchases Bills and Delivery Challans totally amounting to ₹ 1,76,39,908/- of M/s Navkar Enterprises all dated 01.10.2008 which are not entered in the assessee s Purchase Register as well as Ledger Account of M/s Navkar Enterprises in the books of the assess .....

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ill of the assessee is with him and all other bills were with the assessee. After narrating the damaging evidence collected by the A.O. which is briefly narrated in Para 15, Page 7 & 8 of the assessment order, the A.O. concluded that the purchases of ₹ 3,68,63,236/- were bogus purchases made by the appellant from M/s Navkar Enterprises. Similarly, purchase from Shreeji Impex of ₹ 38,24,031/- treated as bogus in A.Y. 2009-10. 4. Matter carried to CIT(A) and CIT(A) has partly allow .....

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purchased locally the damaged stock from local suppliers in cash and, therefore, required bogus bills. The A.O. has not disputed the sales of the assessee and the quantity of sales for the closing stock. The assessee has though disputed the addition but no evidence is produced and no document is produced to show that the purchases were made from Navkar Enterprises and Shreeji lmpex. Therefore, the natural question arises that if purchases were not made from these parties then how was the sale m .....

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g of books quantity wise stock and purchase/sales were tallied to the last Kg. The A.O. has not made any further comments in the remand report on the submissions of the assessee that stock and quantity of purchase and sales have been tallied by the assessee. Therefore, if entire purchases are treated as bogus then the correct income cannot be computed because it gives rise to almost 80%margin on sales. Hence, it will be appropriate if by rejecting books of account, the income is estimated. The a .....

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ejected as basis for computing income and the income is estimated, therefore, there will be no separate disallowance u/s. 40A(3) on account of payments against purchases claimed to have been made to Navkar Enterprises and Shreeji Impex. In the result, the grounds of appeal are partly allowed. 5. The DR submitted that the assessee has made purchase from Enterprises and Shreeji Impex. Therefore, the assessee was asked to produce the cheques and books of account before the Assessing officer to veri .....

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d by the AO that the assessee has made bogus purchases and the assessee has not made any payment made Enterprises. Therefore, this is the case which is entirely a bogus purchase. Therefore, when the assessee is unable to produce the party. Therefore, as per the decision of Hon ble Delhi High Court in the case of Law Midica the entire purchases to be disallowed. 6. The Ld. AR submitted that if at all it is to be added then as per the decision of Gujarat High Court in the case of Sanjay Oil Cake M .....

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he paper @ and selling stock at higher rate 45 to 55 per kg and this gave a very huge profit margin. Therefore, to reduce profit margin the assessee has shown higher payment against the import and supports the same with import bills lesser amount and excess stock imported is covered up by local bills and purchases are inflated and that way he was encashing the Cross Bearer Cheques to bogus party. The Ld. AR submitted that the assessee has purchase the paper from the local market and he has made .....

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IT v Hotline Electronics Ltd [2012] 18 taxmann.com 363 (Delhi) 8. We have heard the rival contention of both the parties looking to the facts and circumstances of the case we find that assessee had made purchase of paper from Navkar EnterprisesRs.3,68,63,236/- and from Shreeji Impex of ₹ 38,20,041/-. During the Assessment proceedings the A.O. issued notice u/s 133(6) to Navkar Enterprises to verify the genuineness of purchase and notice was returned unserved. The assessee submitted that pa .....

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ge stock from local supplier in cash therefore, required bogus bills. The A.O. has not disputed the sells of the assessee and quantity for closing stock the assessee has though disputed the addition but no evidence is produced to show that purchase were made from Navkar Enterprises and Shreeji Impex. Therefore, assessee has not made purchase from this part but the sells have been made. The Books of the account cannot be relied but the profit has to be estimated on the basis of the turn over or a .....

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assessment proceedings for the year 2006-07, the Assessing Officer noticed that some of the suppliers of steel to the assessee and made their statements on oath to the effect that they had not supplied the steel to the assessee but had only provided sale bills. In turn, they were receiving small commission. The Assessing officer concluded that the total purchase of ₹ 41,04,903/- cumulatively made from the three parties were bogus. He thus treated such purchases as bogus purchases and added .....

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432/-. While doing so, he deleted the addition of ₹ 5 lakhs as made by the Assessing Officer on the ground that the addition on account of bogus purchases had already been made. The Tribunal was of the opinion that twelve and half per cent of the disputed purchases should be retained in the hands of the assessee as business profits. On appeal to the High Court: Held, dismissing the appeal, that the Commissioner (Appeals) believed that the purchases were not bogus but were made from the par .....

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ts are similar to the judgment by Hon'ble Gujarat High Court, we find that entire bogus purchases and entire amount of bogus purchase cannot be the gross profit of the assessee. We find that the purchases were not bogus but were made from the parties other than those mentioned in the books of account. The Assessing Officer has not disputed the sales of the assessee and quantity of sales of closing stock. The assessee has though disputed the addition but no evidence is produced and no documen .....

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ock and sales and the quantity-wise stock and purchases / sales were tallied to the last KG therefore, we directed to take the A.O. 12% of the sales as gross profit accordingly re-compute the business of the assessee. We find that CIT(A) has directed to take the G.P. @ 10% of the sales but to cover up all the decisions of the books of accounts. We modify the order of the CIT(A). We direct him to take the 12.5% sales gross profit accordingly the Departmental appeal is partly allowed. 10. In the a .....

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March 2009 the A.O. ask for confirmation which the assessee failed to file. The assessee has taken the contention that the assessee was asked to file the confirmation in respect of outstanding Sundry Creditors because out of above party some suppliers were from abroad and they included party on serial No. 3 are unable to give the confirmation letter because that party is staying abroad and they have given they are unable to give the confirmation letter. The assessing Officer was not satisfied wi .....

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by observing as under: 4.2. I have considered the facts of the case and submissions of the assessee. Section 41(1) states that where allowance or deduction has been claimed in respect of any loss/expenditure or trading liability incurred by the assessee and subsequently during previous year, if the assessee has obtained any benefit in cash or in any kind then such amount will be treated as income of the assessee and, therefore, the A.O. has to show that some benefit against the creditors taxed u .....

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(supra). In these cases, it has been held that the A.O. should show that no liability existed and assessee has taken any benefit in any manner merely because in these cases liability was outstanding for more than few years it cannot be brought to tax u/s. 41(1). In the remand report, A.O. has stated that the assessee does not know the whereabout of a party and, therefore, liability cease to exist. But this logic does not work in business. If the assessee does not know the address of the credito .....

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