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TMI Blog2017 (11) TMI 791X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs.73,85,885/- made by the AO on account of bogus purchase in absence of identity & genuineness of S/Creditors". 3. The Assessee is a company. It is engaged in the business of manufacturing as well as trading in cement. The assessee filed return of income for A.Y.2007-08 declaring total income of Rs. 1,39,670/-.In the course of assessment proceedings the AO noticed that the assessee had shown purchase of finished goods worth Rs. 2 cores in the trading segment. The AO issued a letter u/s 133(6) of Income Tax Act, 1961 (Act) to various persons from whom purchase in the business of trading in cement was made by the assessee. The notice so sent by the AO was returned with the following postal remarks :- Name Nature of transactions P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of AO u/s 133(6) of the Act as bogus with the following observations :- "In the aforesaid reply the assessee has advanced argument that if there. is no purchase there cannot be the sale. It is true in the case of an assessee where it is engaged in the business of trading only. In this case the assessee itself is the manufacturer of .cement and it is also trading in cement. There is every reason to consider that an assessee can not promote the same article or goods of the other manufacturers which it is producing itself. It is against the business ethics. More over in this case the party from whom purchase of cement has been shown are proved to be bogus as postal remarks as mentioned in show-cause letter dtd. 10/12/2010. the assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act and that in any event treating the entire bogus purchases as income of the assessee would lead to absurd results. In this regard the assessee relied on the decision of ITAT Ahmedabad in the case of VR Textiles vs JCIT 11 ITR (Trib.) 478 (Ahm) and Jharkhand High Court in the case of Amitabh Construction P. Ltd. Vs Addl. CIT [2011] 335 ITR 523 (Jhar). 7. The CIT(A) on consideration of the above submissions was of the view that the action of AO in making the impugned addition cannot be sustained and that rejection of books of account of the assessee would have been the proper course. The CIT(A) thus rejected the book results and estimated the profit of the assessee at 15% of the turn over. The following were the relevant observatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d at 15% to absorb the all inaccuracies in the improper, incomplete, unravelled and doubtful accounts. Accordingly the Assessing Officer is directed to estimate income on the basis of determining the Gross Profit at the above rate of 15%. The ground is partly allowed." 8. Aggrieved by the order of CIT(A) the assessee has raised ground No.1 before the Tribunal. 9. We have heard the submissions of the ld. DR who relied on the order of AO and further placed reliance on the decision of Hon'ble Allahabad High Court in the case of Ganesh Rice Mills vs CIT in ITR 84 of 1990 judgment dated 01.03.2005. 10. We have perused the decision of the Hon'ble Allahabad High Court and we find that the substantial question of law considered by the Hon'ble Al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for infraction of law. Therefore it cannot be allowed as deduction in view of the Explanation 1 to section 37(1) of the Income Tax Act, 1961 (Act) which provides that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business and no deduction on such expenses shall be allowed. The CIT(A) deleted the addition on the ground that the payment in question was not penal in nature but only compensatory for delayed payment and therefore cannot fall within the ambit of Explanation 1 to section 37. We are of the view that the conclusion of CIT(A) on this issue are correct and calls for no interference. Ground no.2 raised by the revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X
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