2016 (10) TMI 623

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....termined at Rs. 57,42,160/-. Aggrieved by the order of the Assessing Officer (AO), assessee carried the matter before the ld.CIT(A), who vide order dated 31/05/2013(in Appeal No.CIT(A)/VLS/193/12-13) granted partial relief to the assessee. Aggrieved by the order of ld.CIT(A), Revenue has raised the following ground:- 1. On the facts and circumstances of the case, and in law, the learned CIT(A) has erred in deleting the disallowance of Rs. 49,40,034/- made @ 15% of total purchases. 2.2. On the other hand, Assessee has raised following ground in its cross objection:- 1. On appreciation of facts and circumstances of the case and law, the learned Commissioner of Income tax (Appeals) had rightly deleted the disallowance of Rs. 49,40,034/- made @15% of total purchases. 2. It is therefore prayed that the order of the Learned Commissioner of Income tax (Appeals) be upheld to the above extent. 3. On appreciation of the facts and circumstances of the case and interpretation of law, the Learned Commissioner of Income Tax (Appeals) ought not have directed the Learned Assessing Officer to adopt Net Profit at the rate 3% of the turnover for determining the taxable income in the ca....

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....bers 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. 4.2 The disallowance was made by the AO mainly because the appellant could not produce proper evidence 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 taxable. Admittedly, the nature of business and all factual aspect of the same have been disclosed by the appellant and has not been disputed by the AO. A.lso, admittedly, the AO has doubted the purchases made by the appellant but has not brought on record any instance of waste paper purchases made by the customers of the applicant (Paper Mills) as being found to be bogus on inflated. The AO has not disputed the nature of business carried out by the appellant and has not pointed out any instance of tax planning by any pap....

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....ew paper mills for their business. In view of these facts, I am unable to agree with the AO that an ad-hoc addition of 15% of the purchase value shall be made to determine the fair quantum of taxable profit. 4.5 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 similar1 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, (ii) how cost of the goods is determined,(iv) modus operand! of the trading activities,(v) methods of accounting followed and (vi) the Sale-Purchase ratio. I have also perused the copy of the assessment order passed by Dy. CIT,Central Circle-3,Surat in the case of M/s. Paper Sales Corporation, wherein, the AO had made G.P./ addition of 0.50% to o.75%.The market rule in this trade is that as the turnover increases the G.P./N.P. declines marginally. Considering the case in....

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.... got on record any instance of waste-paper purchases made by the assessee found to be bogus or inflated. He has further noted that assessee had furnished quantitative details of purchase and stock alongwith tax audit report and had shown a GP of 7% and that in similar cases, the Central Circle Surat had estimated the Gross Profit and enhanced the rate between 0.5% to 0.75%. Considering the totality of the facts, he has given a finding that 15% margin in the trading business is not possible and thereafter he considered that the Net Profit rate could be between 2 to 3% and thereafter estimated the Net Profit rate at 3% as against 2.68% shown by the assessee. Before us, neither the Revenue nor the assessee has placed any material on record to controvert the findings of ld.CIT(A). We further find that on identical issue, in the case of ITO vs. Tayab Yunus Barudgar (ITA No.1351/Ahd/2012 and CO No.155/2012) vide order dated 27/05/2016 the Coordinate Bench of Tribunal had dismissed the ground of Revenue by holding as under:- "4. We have heard the Ld.DR, perused the material available on record and gone through the orders of the authorities below. We find that the ld.CIT(A) while decidi....