TaxTMI 
TaxTMI 
2017 (9) TMI 520
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....s.69C. In the A.Y.2009-10, addition so made was u/s.69C was Rs. 69,13,003/-. 4. By the impugned order CIT(A) restricted the addition to the extent of 12.5% after applying various judicial pronouncements. The CIT(A) has dealt with the issue at para 6 to 8.36 of his order after giving his reasoning, the CIT(A) restricted the addition in respect of profit earned on such bogus purchase to the extent of 12.5% amounting to Rs. 8,37,780/-. 5. In the A.Y. 2010-11 similar addition was made by the AO to the extent of Rs. 1,13,69,129/- which was restricted by CIT(A) to the extent of 20%. 6. In the A.Y. 2011-12, addition made by AO u/s.69C amounts to Rs. 1,29,22,428/- which was restricted by the CIT(A) to the extent of 12.5% amounting to Rs. 11,09,892/-. 7. In the A.Y.2012-13, AO made addition u/s.69C amounting to Rs. 1,15,625/-. 8. By the impugned order, CIT(A) restricted addition to the extent of 12.5% of such purchases. 9. Against the above orders of CIT(A), both assessee and revenue are in further appeal before us. 10. We found that detailed finding has been recorded by CIT(A) in all the years under consideration. In the A.Y.2009-10, the findings recorded by CIT(A) in res....
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....Assessment Order passed under section 143(3) r.w.s. 147 of the Act pursuant to the notice under section 148 is ab-initio void. 7.3 Records revealed that the case was re-opened by issue of notice u/s 148 of the IT Act which was duly served upon appellant. In response to the notice u/s.148 of the IT Act, the appellant had submitted that the return filed earlier be treated as filed in response to notice u/s 148 of the IT Act. The AO had also given the reasons recorded for re-opening of the impugned assessment to the appellant. 7.4 The appellant submitted that assessment had been reopened solely on the basis of the information received from Sales Tax Department. The Sales tax Department provided such information on the basis of the general statement of 3rd party named Sh. Devarshi M Ganatra, Proprietor of M/s Dev Enterprises which has been recorded at back of the appellant and copies of such statement had not been provided to the appellant for confrontation. The appellant was not allowed an opportunity of cross examination, thus re-opening of the assessment solely on the basis of statement of 3rd party cannot be sustained. Further, the statement of 3rd party is too ge....
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.... would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces Manganese Ore Co. Ltd. v. ITO [1991] 191 662, for initiation of action under section 147(a) of the IT Act (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is "reason-to believe", but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively pr....
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....ue or receipt of a notice is not, however, the foundation of the jurisdiction of the Income-tax Officer to make the assessment or of the liability of the assessees to pay the tax. It may be urged that the issue and service of a notice under section 22(1) or (2) may affect the liability under the penal clauses which provide for failure to act as required by the notice. The jurisdiction to assess and the liability to pay the tax, however, are not conditional on the validity of the notice. Suppose a person, even before a notice is published in the papers under section 22(1), or before he receives a notice under section 22(2) of the Income-tax Act, gets a form of return from the Income-tax Officer and submits his return, it will be futile to contend that the Income-tax Officer is not entitled to assess the party or that the party is not liable to pay any tax because a notice had not been issued to him. The liability to pay the tax is founded on sections 3 and 4 of the Income-tax Act, which are the charging sections. Section 22, etc., are the machinery sections to determine the amount of tax." [Emphasis supplied] 7.11 The above observations were approvingly cited by the Supreme....
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....peals), we direct the appellate authority to dispose of the same, expeditiously." 7.15 Thus, it cannot be said that Apex Court treated the procedural lapse as fatal to nullify the re-assessment. In any case, in Datamatics Ltd. v. Assistant Commissioner of Income-tax 110 ITD 24 (Mum), Hon'ble Mumbai Tribunal after considering GKN Driveshafts (supra) has held as under : "Considering the issue in detail, in the case of ITO v. Smt. Gurinder Kaur [2006] 102 ITD 189 (Delhi), Tribunal held that non-communication of the reasons is not fatal in the light of the decision of the Hon'ble Supreme Court in the case ofS. Narayanappa v. CIT[1967] 63 ITR 219, rendered by a Bench of three Judges, which was not brought to the notice of their Lordships while considering the matter in the case of GKN Driveshafts (India) Ltd, (supra). Since the Tribunal has considered the decisions of the Hon'ble Supreme Court in the case of GKN Driveshafts (India) Ltd. (supra) and also the case of S. Narayanappa (supra), we are of the view that the plea of the assessee that non-communication of the reasons in spite of request of the assessee made after filing the return, cannot be treated ....
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.... cannot be treated to be a true and full disclosure. A disclosure may be a false one or a true one. It may be a full disclosure or it may not be. The Hon'ble Supreme Court held that a partial disclosure may very often be a misleading one. Therefore, what is required is a full and true disclosure of all material facts necessary for making assessment for that year. As noted in detail earlier, I find from the reasons recorded by the Ld. A.O. that these transactions were not disclosed by the appellant and therefore, prima facie he had valid grounds to reopen the case. 7.20 It has been held in a number of cases that once the A.O. records the mandatory reasons before initiating reassessment proceedings on the basis of evidence brought to his knowledge, the courts cannot step into his shoes as regards the sufficiency of the reasons recorded. The belief must be honest and of reasonable person based on reasonable grounds. The A.O. may act on direct or circumstantial evidence; but his belief must not be based on mere suspicion, gossip or rumour. I find from the facts of the case that the reason is based on specific facts. The Hon'ble Apex court has held that the court can al....
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....ation in Consolidated Photo & Finvest Ltd. vs. Asstt. CIT (2006) 200 C77? (Del) 433 : (2006)281 ITR 394 (Del), it has been held: "9. The above would show that cases falling in cl.(c) of Expln. 2 in which income chargeable to tax has been underassessed or assessed at too low a rate or cases in which income has been made the subject of excessive relief under the Act or where excessive loss or depreciation allowance of any other allowance under the Act has been computed, would constitute cases of income escaping assessee. There is considerable authority for the proposition that the jurisdiction of the AO to initiate proceedings would depend upon whether he has reasons to believe that any income chargeable to tax has escaped assessment. A long string of decisions rendered by the Supreme Court have emphasized that the belief of the AO must be in good faith and must not be a mere pretence. The apex Court has further held that there must be a nexus between the material before the AO and the belief which he forms regarding the escapement of the assessee's income. A writ Court, therefore, is entitled to examine whether the AO's belief was in good faith and whether such reas....
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....he purposes of assessment. The terms of the Explanation, declared the Court, were too plain to permit an argument that the duty of the assessee to disclose fully and truly all material facts would stand discharged when he produces the books of account or evidence which has a material bearing on the assessment. The Court observed (P.644): It is the duty of the assessee to bring to the notice of the ITO particular items in the books of account or portions of documents which ore relevant. Even if it be assumed that from the books produced, the !JO may not on that account be precluded from exercising the power to assess income which had escaped assessment" 7.27 To the same effect is the decision of the Supreme Court in Malegaon Electricity Co. (P) Ltd. vs. CIT (1970) 78 ITR 466 (SC) where the Court observed (page 471): 7t is true that if the ITO had made some investigation, particularly if he had looked into the previous assessment records, he would have been able to find out what the written down value of the assets sold was and consequently he would have been able to find out the price in excess of their written down value realized by the assessee. It con be said th....
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....t has independently examined the material collected by the audit party in its report and has come to an independent conclusion that there was escapement of income. The answer to the question, therefore, in the affirmative, in favour of th Revenue and against the assessee." 7.30 So much so that even in a case of scrutiny assessment, when there is no discussion on the issue in the Assessment order and no details were called for by the A.O. or filed by the assessee on the issue, no finding either positive or negative can be said to have been arrived at during the course of original assessment proceedings. Hence, there is no question of change of opinion as held in the following judgments. 1. Kalyanji Mavji & Co. vs. CIT 102 ITR 287 (SC) 2. Esskay Engineering P. Ltd. vs. CIT 247 ITR 818 3. ITO vs. Purushottam Das Bangur & Anr. 224 ITR 362 (SC). 7.31 The second question that could arise for consideration is whether the appellant had made full and true disclosure of material facts. I have already reproduced above the contentions of the appellant in this regard and the objections raised. There is nothing on record and not even the stand of the ....
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....me has escaped assessment. So much so that it was held by the Hon'ble Supreme Court in Claggett Brachi Co.Ld. vs CIT 177 ITR 409 (SC) that an information obtained during assessment proceedings of a subsequent year can also validate the proceedings initiated u/s.147 for earlier year. Similarly, Hon'ble Bombay High Court in the case of Anusandhan Investments Ltd. vs. M.R. Singh, DOT, 287 ITR 482 held that a notice issued notice u/s 148 of the IT Act based on assessment of subsequent assessment year is valid even if the appeal is pending for such assessment. Further, in the case of Piaggio Vehicles P. Ltd. vs. DOT 290 ITR 377 (Bom), the Hon'ble Jurisdictional High Court held that in a case of reopening after 4 years subsequent scrutiny assessments, contradiction was discovered between Tax Audit report and Return of income, it was a case of omission and/or failure on the part of the assessee to disclose fully and truly all facts for computation of its income. It is also held by Hon'ble Supreme Court in the following cases that facts which could have been found by the ITO by further probing are covered under failure to disclose fully and truly all material facts. ....
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.... 1,86,363.00 8. Bhumi enterprises AVCPS0096H 1,09,200.00 9. Deepak Sales Corporation AOBPJ9865G 2,17,390.00 10. Mayor Trading Company BMQPS9058H 66,7170.00 11. Pooja Traders AL1PS2588P 8,14,995.00 39,62,806.00 8.1 During the course of appellate proceedings, the appellant submitted that the AO has disallowed the purchases of Rs. 69,13,003/-, from 14 parties, which has been added u/s 69C. The total purchases of Rs. Rs. 69,13,003/-, includes VAT of Rs. 2,66,760/-, which is a Govt. tax and should not be included in the amount of purchases. 8.2 I have considered the submission and it is found in order. Therefore, the bogus purchases which are to be considered remains at Rs. 66,46,243/-, instead of the purchases of Rs. 69,13,003/-, as taken by the appellant in the assessment order. 8.3 The appellant submitted that the addition made in assessment treated the purchase of Rs. 66,46,243/-, from 14 parties as bogus purchase and added in the income of the appellant. The appellant, during course of re-assessment, furnished several documentary evidences such as bank statements,....
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....xemption provided by the Act, lies upon the assessee. In the case of Durgaprasad More (Supra), the Hon'ble Court went on to add that a party who relies on a recital in a Deed has to establish the truth of this recital, otherwise it will be very easy to make self serving statements in documents either executed or taken by a party who relied on those recitals. If all that an assessee who wants to evade tax has to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. The Hon'ble Court further held that the Taxing Authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look in to the surrounding circumstances to find out the reality of the recitals made in those documents. 8.7 In yet another case of casting of onus viz. Jamnaprasad Kanhaiyalal vs.CIT 130 ITR 244(SC), Hon'ble Apex Court while considering the scope of immunity u/s. 24 of F.No.(2) Act 1965 held that the immunity provided cannot be invoked in assessment proceedings relevant to any person other than the person making declaration under the Act. In that ca....
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....not the real, in a case where an authority relied on self serving recitals in documents, it was for the party to establish the proof of those recitals; the taxing authorities were entitled to look into the surrounding circumstances to find out reality of such recitals. 8.10 It is also a settled legal proposition that if no evidence is given by the party on whom the burden is cast, the issue must be found against him. Therefore, onus is always on a person who asserts a proposition or fact, which is not self evident. The onus, as a determining factor of the whole case can only arise if the Tribunal, which is vested with the authority to determine, finally all questions of fact, finds the evidence pro & con, so evenly balanced that it can come to no conclusion, then, the onus will determine the matter. Needless to say that the onus is heavy or light, depending on the facts and circumstances of each case. There cannot be any doubt that onus as a determining factor comes into play where, either there is no evidence on either side, or where it is equally worthless or where it is equally balanced. It is imperative to mention here that where such is not the case and all available ....
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....he party from whom bills were procured and hence, no delivery could have been made. As seen later, Ld. A.O. has himself held that the transactions from the supplier were not genuine but the appellant's purchases were not sham. However, addition was made as the expenditure remained unproved. 8.14 In the case before the Hon'ble Bombay High Court in Nikunj Eximp (supra), the suppliers had not appeared before the Assessing Officer and from the judgment it appears that it was not a case of the suppliers being nonexistent. However, in the present case in appeal, the alleged suppliers have been found to be non-existent. This is not merely a case where the supplier has failed to appear before the Assessing Officer. Hence, the judgment of the Hon'ble Bombay High Court relied upon by the appellant would be of no help. 8.15 The assesses often rely on the decision of Hon'ble ITAT Mumbai Bench in the case of Rajeev G. Kalathil in ITA Nos. 6727/Mum/2012 and CO No. 06/Mum/2014 where vide order dated 20-08-2014, the addition made on account of bogus purchases were deleted. However, I find that the finding of the Hon'ble ITAT is based on the peculiar facts of t....
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....erating well settled and established position of law, it could not be said to have caused prejudice to assessee - Held, yes - Whether when a transaction is sham and not genuine as in instant case, then it could not be considered to be a part of tax planning or legitimate avoidance of tax liability - Held, yes -Whether further since issues in instant case were purely questions of facts on which there were concurrent findings of authorities below, it was to be held that there was no question of law to be considered -Held, yes [In favour of revenue]. 14. So far as the principle laid down in the matter of Omar Salay Mohamed Salt (supra) is concerned there can be no dispute about the proposition laid down therein. However we have not been shown how the Tribunal was in breach of the same. We find that the Tribunal has considered the evidence of purchase and sale of shares to book long term and short term losses and taking all the evidence together including the surrounding circumstances reached a finding that the purchase and sale of shares is not genuine. So far as the decision of the Supreme Court in Vodafone International Holdings B.V. v. Union of India [2012] 204 Taxman 408 ....
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....nce of tax liability. The Supreme Court in fact concluded that there is no conflict between its decisions in the matter of McDowell (supra), Azadi Bachao (supro) and Mathuram Agarwal (supra). In the present case the purchase and sale of shares, so as to take long term and short term capital loss was found as a matter of fact by all the three authorities to be a sham. Therefore authorities come to a finding that the same was not genuine. So far as the question Nos. (ii), (Hi) (iv) and (v) are concerned, we hold that these are pure questions of facts and as there are concurrent finding of the authorities below, no question of law arises for this Court to interfere." 8.17 Hon'ble Allahabad High Court while dealing with the issue of bogus purchase in the case of Sri Ganesh Rice Mills v. Commissioner of Income-tax [2007] 294 ITR 316 (ALL.), held as under : "Where Assessing Officer had recorded a finding that in order to lower profits, bogus purchases hod been introduced and Tribunal upheld such finding, addition on account of disallowance of such purchases was justified [Assessment year 1984-85]. The assessee was engaged in the production of gram, pulses, rice chun....
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....es is defeated. What can be the purpose to enter a bogus purchase in the books, obviously to show lesser profit than actually earned. This in turn could be to bring the gross profit rate to near about the earlier years' performance in order to avoid a deeper probe by the taxinq authorities and/or to avoid paying higher taxes. Thus, when once bogus purchase is entered in the books without a corresponding sales or increase in stocks, the obvious result would be lowering of g.p. rate. If these bogus purchases are removed, the g.p. rate would automatically go up. Under the assumption that the purchases are bogus, one situation visualised is that there are no corresponding sales, then addition at what rate can be more justifiable than by the bogus purchase itself? 9. Likewise, there can be another situation also. The purchase may be bogus and correspondingly there may be a bogus sales also, and since both are bogus, the GP rate is obviously manipulated to affect the overall result. Then, accepting Shri Sanghvi's contention would further make the accounts bogus. Similarly, there may be many such situations because, accountancy is essentially an art and not a science. ....
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....m of the entire purchases of gas cylinders or not. The principle regarding making of a best judgment assessment has been well settled by the Apex Court in the case of Dhakeswari Cotton Mills Ltd. v. CIT [1954] 26 ITR 775 wherein the Apex Court has held as follows ;- "As regards the second contention, we are in entire agreement with the learned Solicitor-General when he says that the Income-tax Officer is not fettered by technical rules of evidence and pleadings, and that, he is entitled to act on material which may not be accepted as evidence in a court of law, but there the agreement ends; because it is equally clear that in making the assessment under sub-section (3) of section 23 of the Act, the Income-tax Officer is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. There must be something more than bare suspicion to support the assessment under section 23(3). The rule of law on this subject has, in our opinion, been fairly and rightly stated by the Lahore High Court in the case of Seth Gurmukh Singh v. CIT [1944] 12 ITR 393...." (782) 41. In the present case we find that the Commissioner of Incom....
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....ax has to be levied on the real person. Under these circumstances and keeping in view the decision of representative in the case ofCITv. La Medico [2001] 250ITR 575, we are of the view that the assessee-company has debited bogus purchases in its books of account which the assessee-company could not substantiate and, accordingly, the Commissioner of Income-tax (Appeals) was not justified in deleting the addition of Rs. 4,37,048, which is directed to be reversed and added in the income of the assessee-company. Consequently, the addition made by the Assessing Officer amounting to Rs. 4,37,048 is upheld. The ground taken by the Revenue, is therefore, allowed." 9. The Tribunal, thus, by its order dated June 10, 2002, set aside the order of the Commissioner of Income-tax (Appeals) and restored the addition of Rs. 4,37,048 in the hands of the appellant-company as was done by the Assessing Officer. 10. In so far as the addition of Rs. 4,37,048 in the hands of the appellant company is concerned, we are satisfied with the reasons given by the Tribunal in paragraph 6 of its order. The addition of the amount of Rs. 4,37,048 in the hands of the appellant-company cannot be said....
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....erial to dislodge such finding. The issue is not whether the purchase price reflected in the books of account matches the purchase price stated to have been paid to other persons. The issue is whether the purchase price paid by the assessee is reflected as receipts by the recipients. The assessee has, by set of evidence available on record, made it possible for the recipients not being traceable for the purpose of inquiry as to whether the payments made by the assessee have been actually received by the apparent sellers. Hence, the estimate made by the two appellate * authorities does not warrant interference. Even otherwise, whether the estimate should be at a particular sum or at a different sum, can never be an issue of law." 8.23 In the case of Assistant Commissioner of Income-tax v. Tribhovandas Bhimji Zaveri [2000] 74 ITD 92 (MUM.), Hon'ble Mumbai Bench of ITAT while dealing with the issue of bogus purchases where similar arguments were advanced to buttress the claim of purchases, held as under: "Considering the number of coincidences involved in the scheme, we are of the view that the entire scheme has been planned and coordinated by the assessee-firm. ....
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.... the position of a quasi-judicial Tribunal and is not bound by the rules of the Evidence Act, but he must act in consonance with natural justice, and one such rule is that he should not use any material against an assessee without giving the assessee an opportunity to meet it. He is not bound to divulge the source of his information. There is no denial of natural justice if the ITO refuses to produce an informant for cross-examination though if a witness is examined in the presence of the assessee, the assessee must be allowed to cross-examine him. The range of natural justice is wide and whether or not there has been violation of natural justice would depend on the facts and circumstances of the case." 8.25 The Supreme Court had also an occasion to consider the applicability of the principles of natural justice in R.S. Doss v. Union of India AIR 1967 SC 593. Referring to the same, the Supreme Court in Chairman, Board of Mining Examination v. Ramjee AIR 1977 SC 965, inter alia, held as follows: "Natural justice is no unruly horse, no lurking land mine, nor a judicial cure all. If fairness is shown by the decision maker to the man proceeded against, the form, featu....
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....brics. For the A.Y. 2005-06, the Assessing Officer held that the purchases worth Rs. 40,69,546/- were unexplained. He, therefore, disallowed such expenditure claimed by the assessee and computed the total income of Rs. 41,10,187/~. The issue was carried in appeal by the assessee before the Ld. CIT(A) who rejected the appeal, upon which the assessee went in further appeal before the Hon'ble Tribunal. The Hon'ble Tribunal substantially allowed the assessee's appeal. In so far as the question of bogus purchase is concerned, the Hon'ble Tribunal concurred with the Revenue's views that such purchases were made from bogus parties. The Tribunal noted that the Assessing Officer had issued notice to all parties from whom such purchases were allegedly made. Such notices were returned unserved by the postal authorities with the remark that the address was incomplete. The Inspector deputed by the Income-tax Department also could not find any of the parties available at the given addresses. The assessee was unable to produce any confirmation from any of the parties. Though the assessee had claimed to have made payment by account payee cheques, upon verification it was found ....
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....to disprove the findings of the Ld. AO regarding the non-existence of the party. Ld. AO has, after examining the evidences, found that the appellant did purchase the goods, although not from the party in question and she had also shown sales of the goods and had offered the income on such sale of goods. In this case, I also find that Ld. AO has observed that quantitative details were maintained and the appellant being a trader of goods, Ld. A.O. not having doubted the genuineness of sales, could not have gone ahead and made addition in respect of entire purchases especially when he himself recorded a finding that the appellant made the purchases from some other party. Thus, the issue would boil down to finding out the element of profit embedded in bogus purchases which the appellant would have made from some unknown entities. Hence, following the decision of the Hon'ble Gujarat High Court in Bholanath Polyfab Pvt. Ltd. (supra), the profit margin embedded in such amounts of purchases could only be disallowed and subjected to tax. 8.31 Similarly, in yet another decision of Hon'ble Gujarat High Court in the case of CIT vs. Simit Sheth (2013) 38 Taxmann.com 385 (Guj), ....
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....Sanket Steel Traders (ITA No. 2801/Ahd/ 2008 dated 20-05-2011 it was, inter-alto, stated as under: < "3. At the time of hearing before us, it is submitted by the Learned Counsel that the addition sustained is excessive, in support of this contention he referred to the decision of the Tribunal in the case of ITO vs. Sun Steel 92 TTJ (Ahd) 1126 wherein the Tribunal has sustained the addition of Rs. 50,000/- on account of bogus purchases. However, we find that the facts in the above case were different. In the above case, the assessee has shown purchases of Rs. 27,39,410/-f sale of Rs. 28,17,207/-and Gross Profit at Rs. 94,740/-. The Assessing Officer made the addition of Rs. 27,39,407/- for bogus purchases. If the above sum is added to the Gross Profit, the Gross Profit works out Rs. 2,83,41,247/- which was more than the sale itself. The Tribunal held that it is impossible that the Gross Profit is more than the sale itself. The Tribunal also found that the assessee has maintained the quantitative details in respect of materials purchased and sold. Considering peculiar facts of that case, the Tribunal arrived at the conclusion that it would be fair and reasonable to estimate the addit....
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....d parties before the Sales Tax Department, without conducting any other investigation. In the instant case also, the assessing officer has made the impugned addition on the basis of statements given by the parties before the Sales Tax department. We notice that the Ld.CIT(A) has taken not? of the fact that no sales could be effected without purchases. He has further placed reliance on the decision rendered by Hon'ble Gujarat High Court in the case of OT Vs. M.K. Brothers (163 ITR 249). He has further placed reliance on the decision by the Tribunal in the case of ITO Vs. Premanand (2008) (25 SOT 11) (Jodh), wherein it has been held that where the AO has made addition merely on the basis of observations made by the Sales tax dept and has not conducted any independent enquiries for making the addition especially in a case where the assessee has discharged its primary onus of showing books of accounts, payment by way of account payee cheque and producing vouchers for sale of goods, such an addition could not be sustained." 3. THE ITAT "D" Bench, Mumbai in case of Ramesh Kumar & Co. Vs. ACIT [ITA No.2959/Mum/2014] has held that "Once the assessee has brought on record the d....
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....en submission stating therein that the purchases were made in regular course of business. The motive behind obtaining bogus bills thus, appears to be inflation of purchase price so as to suppress true profits. Considering the facts of the case as well as the various case laws cited (supra) especially in the cases of CIT vs. Simit P. Sheth, Bholanath Poly Fab and Sanket Steel Traders (supra), 1 estimate the embedded profit to the extent of 12.5% of the net purchases~"shown from the bogus supplier during the year as per the chart below, as the profit element embedded in such purchases. 8.36 The total purchases of Rs. Rs. 69,13,003/-, includes VAT of Rs. 2,66,760/, which is a Govt. tax and should not be included in the amount of purchases. Therefore, the amount of purchase is being taken to Rs. 66,46,243/- as purchases. Since, the AO has not determined and GP during year, netting of GP on these transaction is not been taken in this case. Therefore, addition @ 12.5% of such purchases of Rs. 66,46,243/-, which comes out to Rs. 8,30,780/-is confirmed. Accordingly, Grounds No. 5 to 8 filed along Form No.35 dated 27.03.2014 are partly allowed. Sr. No. Name of the party PAN No. ....