TMI Blog2017 (10) TMI 781X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance of non-genuine purchases to 12.5%. 2. Briefly stated the facts are that the assessment of the assessee was reopened u/s 147 of the Act by issue of notice u/s 148 dated 07.03.2014 for the reason that as per the information received from the investigation wing of the department the assessee entered into transaction with various parties as mentioned in the Assessment Order for purchase of material and these dealers were reflected as hawala dealers in the website of the Sale Tax Department, Investigation Wing, Mumbai, who allegedly provided only accommodation bills. In the course of the re-assessment proceedings the assessee was asked to furnish the details of ledger accounts, copies of bills, invoices, proof of delivery of goods with transportation details rendering of services, bank statements and other documentary evidences to substantiate the genuineness of the transactions. In response the assessee vide letter dated 06.02.2015 submitted ledger accounts bank statements etc., It was also contended before the Assessing Officer by the assessee as under: (i) The assessee has procured / purchased materials from various sources mainly through suppliers/brokers/agents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rts and the Tribunals and concluded that entire purchases cannot be treated as bogus, but reasonable estimate should be made and he estimated the element of profit out of such unproven purchases @12.5%. 5. Ld. DR vehemently supported the orders of the Assessing Officer and the Learned Counsel for the assessee supported the orders of the Ld.CIT(A). 6. Further Learned Counsel for the assessee referring to Page 59 submits that in the case of ACIT v. Mr. Pukhraj H. Mehta the Coordinate Bench estimated net profit at 6% before depreciation. He submits that Mr. Pukhraj H. Mehta is the proprietor of Mehta Enterprises and the business of this proprietary concern was taken over by the assessee company. The Learned Counsel for the assessee submits that the assessee in this case also a civil contractor undertaking works for Government and Semi Government agencies. The Tribunal restricted the net profit to 6% without depreciation. Learned Counsel for the assessee further submits that assessee is primarily undertaking the contract works from Government and Semi-Government Departments, Local Authorities and Private Parties. Therefore, if the net profit of the assessee is estimated at 6% wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company cannot be relied and deserves to be rejected and reasonable profit out of such purchases needs to be estimated. 6.2.11 During the appellate proceedings, AR of the assessee company further submitted that the assessee company has went into the Settlement Commission for the assessment years AY 2010-11, 2011-12 where it offered Net Income on percentage basis. Different rate were taken on different type of contracts. Contracts received from MCGM etc and executed by self 8% Contracts received from MCGM etc and sub contracted to others 3% Contracts received from others and executed by the applicant 5% RMC Manufacturing 6% The Hon'ble Settlement Commission accepted the appellant's offer mainly on the grounds that credit has not been challenged and only option left with the revenue is to work out estimated profit on unproved purchases. 6.2.12 Since, the AO has not challenged the credits, and thus, there is no case for the total disallowance of the purchase figure. But, the fig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was completed u/s 143(3) of the Act. In the assessment, AO made an addition of ₹ 76.85 lakhs on account of 'purchases' (para 6 of the assessment order is relevant in this regard). During the assessment proceedings AO noticed that the assessee made purchases from 13 parties. AO undertook the exercise of verification invoking the provisions of section 133 (6) of the Act. 11 of the parties were responded to the AO and confirmed the sales. Two parties out of 13 namely M/s. Bhakti Trading Co and M/s. Sunrise Enterprises not attended and confirmed the purchases. The total sales by these two parties amount to ₹ 76.85 lakhs and the same was treated as unexplained sales. It is the finding of the AO that no evidence was furnished by the assessee during the assessment proceedings. There were other expenses incurred in cash. Considering the peculiar circumstances of the case, AO made a disallowance of ₹ 80 lakhs of expenses in toto. Matter travelled to the first appellate authority. 4. During the proceedings before the first appellate authority, regarding the said two parties i.e., M/s. Bhakti Trading Co and M/s. Sunrise Enterprises, assessee made various submis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AY Turnover Profit before depreciation 2004-05 10,28,11,690 4.98% 2005-06 11,17,18,002 5.14% 2006-07 14,38,46,800 6.5% 2007-08 22,85,07,658 6.5% 2008-09 49,80,65,227 5.94% Average 5.81% Thus, from the above past results also it is noted that the average operational profits (before depreciation has been around 5.81% and hence it is clear that the appellant agreed for net income 6% before depreciation only. Even otherwise there is no element of profit in depreciation and hence even if for any reasons the profits have to be estimated, the same has to be estimated only prior to depreciation and not after depreciation once the assessment is not being made under provisions of section 44AD. Further, in earlier 2 years, the net profit of 4.77% after depreciation has already been accepted by the A 0 u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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