TMI Blog2017 (8) TMI 916X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - I.T.A No.2241-2243/Mum/2016, ITA No.2608/Mum/2016 And ITA No.2591/Mum/2016 - - - Dated:- 4-8-2017 - Shri D.T. Garasia (JUDICIAL MEMBER) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shah Co Rajkamal Steel Centre. The AO further observed that M/s BP Shah Co and Rajkamal Steel Centre have filed their replies wherein thy have stated that they have only issued bills. Therefore, the AO issued show cause notice to the assessee and asked to furnish as to why purchases made from the so-called hawala operators cannot be disallowed u/s 69C of the Act. In response to show cause notice, the assessee vide its letter dated 14-03-2014 submitted that the purchases from the said parties are genuine and supported by proper purchase bills and payments were made through cheques. In support of his argument, filed copies of purchase bills and stock registers. The AO, considering the statement given by the partner of the firm before DDIT(Inv), held that it is undoubtedly clear that the assessee has been obtaining accommodation bills with a view to inflate the purchases. The AO further observed that while answering to a specific question before the DDIT(Inv), the partner of the firm admitted that the firm has purchased goods from the grey market in cash and obtained bills from the hawala operators. Therefore, the AO opined that purchases from the so-called hawala operators are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the AO to make addition at 100% of such purchases from the alleged hawala operators. With these observations and also by relying upon the decision of Hon ble Gujarat High Court in the case of CIT vs Smit P Sheth, the CIT(A) directed the AO to estimate net profit at 12.5% on the total purchases from the alleged hawala operators. Aggrieved by the CIT(A) s order, the revenue is in appeal before us. 6. The Ld. DR submitted that the Ld. CIT(A) has erred in not considering that the addition made by the AO is based on the information received from the DDIT (Inv) and Sales-tax department of Maharashtra with regard to the bogus purchases made by the assessee from hawala operators without supply of goods. The CIT(A) erred in not considering the admission by the hawala dealers before the Sales-tax authorities that they have accepted issue of bogus bills without actual delivery of goods. In spite of bringing cogent evidence to support additions made by the AO, the CIT(A) turned down all the efforts made by the AO to delete additions towards alleged bogus purchases. The DR further referring to the decision of Hon ble Supreme Court in the case of NK Protiens Ltd vs CIT in SLP No.759 of 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld 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. Under these facts and circumstances, 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. 9. Having said so, let us examine what is 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) 58 Taxman.com414 (Guj) has upheld estimation of net profit at 25% on bogus purchases. The Hon ble Gujarat High Court in the case of Smit P Sheth 356 ITR 451 (Guj) has observed that no uni ..... X X X X Extracts X X X X X X X X Extracts X X X X
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