TaxTMI 
TaxTMI 
2016 (2) TMI 561
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....antial relief to the Assessee. Aggrieved by the order of CIT(A), Revenue is now in appeal before us and Assessee has also filed the C.O. The grounds raised by the Revenue reads as under: "(i) On the facts and circumstances of the case, and in law, the learned CIT(A) has erred in directing Assessing Officer to adopt 2% NP. (ii) On the facts and circumstances of the case, and in law, the learned CIT(A) has erred in deleting the addition of Rs. 1,79,482/- made on account of disallowance of expenses. (iii) On the facts and circumstances of the case, and in law, the learned CIT(A) has erred in deleting the addition of Rs. 1,65,560/- made on account of addition under the provision of section 68 of the IT Act. (iv) On the facts and circumstances of the case, and in law, the learned CIT(A) has erred in admitting the additional evidences without giving any opportunity of being heard to the AO." On the other hand, the grounds raised by assessee in his C.O. reads as under: "1. I.T.O. has erred in alw and on facts to disallow on adhoc basis 15% of purchases of Rs. 1,26,08,324/- as bogus purchases. Learned CIT (Appeals) deleted such addition but estimated N.P. of Rs. 17,29,564/- on e....
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.... AO in paragraph no. 11 of the assessment order, the rate of each ton of waste paper is around Rs. 8ooo/- in the Vapi Industrial town where there are 45 to 50 small scale paper mills. The paper Mills Association fixes up such purchase price to have a level playing field for the members by ensuring uniform impact of cost of raw materials i.e. waste paper. The waste paper traders like the appellant obtain VAT registration and other required government permissions and disclose to the VAT department their turnover and other details on a regular basis through mandatory VAT returns and the VAT authorities make an assessment under the VAT law and determine the tax liability on an year to year basis. 6.1 The disallowance was made by the AO mainly because the appellant could not produce proper evidences in support of the total purchases made and according to the AO the nature of waste paper business enables paper mills to reduce their incidence of taxation. Admittedly the nature of business and all factual aspects of the same have been disclosed by the appellant and has not been disputed by the AO. Also admittedly the AO has doubted the purchases made by the appellant but has not brought ....
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....e quantum of sales. There is no possibility of waste paper traders like the appellant acting as conduits for tax planning on behalf of the paper mills. The AO himself has observed that the purchase price is fixed by the GPMA. The traders like the appellant are dependent upon a few paper mills for their business. In view of this facts I am unable to agree with the AO that an adhoc addition of 15% of the purchase value shall be made the determine the fair quantum of taxable profit. 6.4 As pointed out by the appellant the Central Circle Surat has completed the assessment of similar traders by estimating the gross profit and enhanced the rate between 0.5% to 0.75 % being the facts similar to the appellant. This indicates that this trading activity is high volume low margin business, I have also spared my thoughts on various aspects of the business activities such as i) what are the items covered under this trade, ii) source of waste papers and other items traded by the appellant, iii) how cost of the goods is determined, iv) modus-operandi of the trading activities, v) methods of accounting followed and vi) the Sales -Purchase ratio. I have also perused the copy of the assessment ord....
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....ver and the net profit of the Assessee in immediately preceding and subsequent years which could demonstrate the trend of NP/GP earned by the Assessee in those years. We are further of the view that in the present case, it would not serve the purpose if the matter is remanded back to decide the issue for estimation of income afresh in view of the fact that the matter is almost five years old and would result into prolonging the litigation and delay in attaining finality to the issue and more so even in that case, the income will have to be estimated. Considering the totality of the facts, we are of the view that in the present case, the ends of justice shall be met if the income is estimated by applying the Net Profit Rate of 2.5% as against 2% considered by the CIT(A). We thus direct accordingly. Thus, this ground of Revenue's appeal is allowed and assessee's ground is dismissed. 6. Ground no.2 is with respect to deleting the addition of Rs. 1,79,482/- under the head "Indirect Expenses". 6.1 During the course of assessment proceedings and on perusing the Profit and Loss account, A.O noticed that Assessee has debited Rs. 11,96,547/- as indirect expenses. A.O noted that Assessee d....