Tribunal directs AO on gross profit, remands for investment computation, both appeals allowed

The appeal in the first case was allowed as the Tribunal directed the Assessing Officer to determine gross profit at 10% on alleged hawala purchases, finding the addition without evidence of physical movement of goods to be incorrect. In the second case, the Tribunal remanded the issue for proper computation of disallowance related to investments yielding exempt income, as discrepancies were found in the Assessing Officer's calculation. The Tribunal allowed both appeals, with the first case being allowed for statistical purposes and the second case being allowed based on identical facts and issues.

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Issues:
1. Challenge to addition made on account of hawala purchases under section 69C of the Income Tax Act.
2. Disallowance made under section 14A of the Income Tax Act.

Analysis:

Issue 1: Challenge to addition on account of hawala purchases
The assessee challenged the addition made by the Assessing Officer (AO) on account of purchases treated as hawala purchases under section 69C of the Act. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed the AO's order. The assessee contended that the AO added entire purchases as hawala purchases without considering gross profit. The Tribunal noted that the assessee produced bills and credit notes from the parties but failed to provide evidence of physical movement of goods. Referring to a previous case, the Tribunal held that adding entire purchases without evidence of physical movement is incorrect. The Tribunal directed the AO to determine gross profit at 10% on the alleged purchases. Therefore, the grounds raised by the assessee were allowed.

Issue 2: Disallowance under section 14A
The AO disallowed expenses under section 14A as the assessee received exempt income from mutual funds and dividends. The assessee argued that no expenditure was incurred to earn the exempt income. However, the AO applied Rule 8D of the Rules to disallow expenses. The Tribunal found discrepancies in the AO's calculation of disallowance. The CIT(A) confirmed the AO's decision without addressing the errors in calculation. The Tribunal observed that the investments held by the assessee did not yield dividend income but earned taxable income. As the AO did not record the exempt income earned by the assessee, the Tribunal remanded the issue for proper computation of disallowance related to investments yielding exempt income. Therefore, the grounds raised by the assessee were allowed for statistical purposes.

In a separate appeal, the Tribunal found the facts and issues to be identical to the first appeal and allowed the appeal of the assessee accordingly.

In conclusion, the appeal in the first case was allowed for statistical purposes, and the appeal in the second case was also allowed.

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