AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2017 (11) TMI 791
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....rofit @ 15% of gross turnover, where disallowance of Rs.73,85,885/- made by the AO on account of bogus purchase in absence of identity & genuineness of S/Creditors". 3. The Assessee is a company. It is engaged in the business of manufacturing as well as trading in cement. The assessee filed return of income for A.Y.2007-08 declaring total income of Rs. 1,39,670/-.In the course of assessment proceedings the AO noticed that the assessee had shown purchase of finished goods worth Rs. 2 cores in the trading segment. The AO issued a letter u/s 133(6) of Income Tax Act, 1961 (Act) to various persons from whom purchase in the business of trading in cement was made by the assessee. The notice so sent by the AO was returned with the following pos....
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....effecting purchases there cannot have sale of cement and therefore purchases are considered not genuine. The corresponding sales should also be ignored. This was rejected by the AO and the addition of Rs. 1,73,85,885/- which is the value of purchases for which the respective parties did not respond to the notice of AO u/s 133(6) of the Act as bogus with the following observations :- "In the aforesaid reply the assessee has advanced argument that if there. is no purchase there cannot be the sale. It is true in the case of an assessee where it is engaged in the business of trading only. In this case the assessee itself is the manufacturer of .cement and it is also trading in cement. There is every reason to consider that an assessee ....
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....ained the gross profit of the Assessee would be highly unrealistic. The assessee also contended that the fact that the purchasers did not respond to the notice u/s 133(6) of the Act can at best by a circumstance which can lead to rejection of books of account of an assessee and profit of the assessee can be estimated u/s 145(3) of the Act and that in any event treating the entire bogus purchases as income of the assessee would lead to absurd results. In this regard the assessee relied on the decision of ITAT Ahmedabad in the case of VR Textiles vs JCIT 11 ITR (Trib.) 478 (Ahm) and Jharkhand High Court in the case of Amitabh Construction P. Ltd. Vs Addl. CIT [2011] 335 ITR 523 (Jhar). 7. The CIT(A) on consideration of the above submission....
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.... of affairs is still privy to the appellant and not divulged to the Assessing Officer. Therefore the 7.11 % Gross Profit despite being marginally more than the figure for the AY 2007-08 cannot be adopted. Considering the extent of incorrectness, I am of the opinion that a Gross Profit rate of 15% is appropriate in the case. The figure is pitched at 15% to absorb the all inaccuracies in the improper, incomplete, unravelled and doubtful accounts. Accordingly the Assessing Officer is directed to estimate income on the basis of determining the Gross Profit at the above rate of 15%. The ground is partly allowed." 8. Aggrieved by the order of CIT(A) the assessee has raised ground No.1 before the Tribunal. 9. We have heard the submissions of....
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....est payment as penal in nature. " 12. As far as ground no.2 raised by the revenue is concerned it relates to addition of Rs. 28,463/- made by the AO on the ground that the interest was paid by the assessee for delayed payment of excise, income tax and sales tax was liable to be disallowed. According to the AO the aforesaid payment was in the nature of penal for infraction of law. Therefore it cannot be allowed as deduction in view of the Explanation 1 to section 37(1) of the Income Tax Act, 1961 (Act) which provides that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business and no deduction on such expenses shall be a....