TaxTMI 
TaxTMI 
2013 (6) TMI 543
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....ll as on the subject, the learned Commissioner of Income Tax (Appeals) has erred in confirming the action of the assessing officer in sustaining addition extent to Rs.9.12 lakhs on estimating net profit at 0.5% on turnover." ITA No.2407/Ahd/2012 (Revenue's appeal for AY: 2009-10) 3. The revenue has raised four grounds in its appeal wherein ground Nos. 3 and 4 are general in nature and do not survive for adjudication. Grounds No.1 and 2 are reproduced herein under for reference: "1. On the facts and circumstances of the case and in law, the Ld. CIT(A)-I, Surat has erred in restricting the addition of Rs.2,73,09,640/- made by disallowing 25% of total purchases by the assessee to Rs.9.12 lakhs as he has ignored the fact that the assessee never admitted before the A. O. that all the transactions were made only for bank finance and no proof of receipt of goods were produced by the assessee. 2. On the facts and circumstances of the case and in law, the Ld. CIT(A)-I, Surat has erred in admitting the assessee's submission that it was a case of circular transactions to fulfill turnover criteria of banks for getting finance, without calling for a remand report under Rule 46A."....
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....rchases made by the assessee. (vi) The assessee had failed to furnish purchase bills, registers etc. in support of its expenses. (vii) Since, the assessee could not substantiate the above purchases with any cogent evidence to prove its claim of purchases after affording sufficient opportunity, the learned AO held the same to be bogus purchases totaling to Rs.10,92,38,563/- and held as under: "13. Hence, it is proved beyond doubt that though the entries in the books as claimed by the assessee is made as purchases, the assessee has completely failed to produce any material evidence in respect of actual purchase made as well as receipt of goods in the form purchase bills, delivery challan, inward records, payments by account payee cheques etc. for verification. 14. In view of the above position of the case, and also the following facts which come across during the course of assessment proceedings, it is clear that the purchases amounting to Rs.7,49,911 plus Rs.3,42,45,652/- totaling to Rs.10,92,38,563/- from M/s.Raman Fabrics P. Ltd. and Kalaniketan Syntex P. Ltd., respectively claimed to have been made were bogus and not genuine in the absence of documents such as purchas....
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....onsider the material which is placed before them and, if , after taking into account in any case the opinion that correct profits and gains cannot be deduced, then they would be justified in applying the proviso to section 13." In the case of British Paints (SC) 186 ITR 44 also, the Hon'ble Supreme Court has held that, if, after taking into account the absence of stock register coupled with other materials, the Assessing Officer is of the view that correct profits and gains of the business of the assessee cannot be arrived at, then the Assessing Officer would be justified in invoking the provisions of section 145 of the Act. In the circumstances, the book results disclosed by the assessee are rejected under section 145(3) of the I. T. Act. 16. Keeping all these factors in mind after duly considering all the documents/reply furnished by the assessee' representative during the course of assessment proceedings, 25% of the total purchases as shown in the ledger account through such bogus/fictitious purchase by the assessee from two parties i.e. M/s. Raman Fabrics P. Ltd., and M/s. Kalaniketan Syntex P. Ltd. totaling to Rs.10,92,38,563/- is disallowed and added to the total income....
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....ions are as shown in the books of accounts of purchases and sales were made by the assessee to fulfill "turnover" criteria of banks of for getting finance. It is pertinent to note that the same was to create a turnover by internal sales and purchases to have a reasonable turnover which in return would facilitate a respectable project report for bank finance. The fact of FDR of specific amount was kept with bank added force to our submission as FDR were put so that the same shall fulfill the criteria of collateral security. Hence the turnover as mentioned in the trading and profit and loss account of the assessee was in fact not a actual turnover in common business parlance and hence the question of taxing any hypothetical profit out of such structured turnover does not arise..........." 11. In this back ground when we see facts like a turnover 18.23 crores with gross profit of 0.4% and net profit of 0.02%, no sales in subsequent year i.e. A. Y. 2010-11, negligible administrative expenses of Rs.46,187/- and outstanding Debtor/Creditor, it is apparent that both the purchases and sales in this case are bogus and only book entries for purchase/sale have been made. Such transactio....
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....f turnover depending upon whether it is a case of circular transactions, unverifiable purchase or bogus entries. In case of giving accommodation entries the profit estimation in diamond cases referred to supra has been at 1.5% while for textile case the ITAT Ahmedabad has taken a percentage of 0.125%. Since rate of commission for giving entries in textile trade are bound to be lower than the rates for diamond trade, estimate has to be closer to 0.125% and not 1.5%. Alternatively, if it is case of unverifiable purchases in textile business, then the estimate of net profit for a turnover of this size may be between 0.5% to 1%. The present case falls in neither of the categories. It is a case of circular transactions to show a fake healthy balance sheet. However, the appellant cannot escape the provisions of Section 40A(2)a/40A(2)b even in case of circular transactions within group concerns. Therefore a reasonable estimate of profit is required even in that case in view of Section 40A(2)a/40A(2)b. Considering all these facts a net profit of 0.5% is estimated on turnover of Rs.18.23 crores. Therefore, addition is sustained to extent of Rs.9.12 lakhs." 7. None appeared on behalf of t....