TaxTMI 
TaxTMI 
2018 (10) TMI 739
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....ess of manufacture of ceramic glaze mixture. It has filed its return of income on 8.9.2010 declaring total income of Rs. 7,89,630/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) was issued and served upon the assessee. On scrutiny of the accounts, the ld.AO found outstanding liability as on 31.3.2010 against three entities from which purchases were made. He noticed such details as under: Sr. No. Name of the Party Purchases in Rs. Outstanding liability in Rs. 1. Maharaja Mineral & Traders Rs.81,14,080/- Rs.61,39,449/- 2. Balaji Grinding Mills Rs. 44,89,680/- Rs.40,71,680/- 3. Natural Traders Rs. 82,03,000/- Rs.77,85,000/- 4. The ld.AO, thereafter issued notice to all these concerns as well as to the assessee and called for various details. After detailed inquiry, he disallowed certain payments made to these parties with the help of section 40A(3). This section contemplates that payments made to a party at a time exceed Rs. 20,000/- in cash would not be allowable as deduction. In this way, the ld.AO has made addition of Rs. 28,01,631/-. The ld.AO has determined t....
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....he ld.CIT(A). In other words, sale target achieved by the assessee have been accepted. The case of the AO while examining purchases was that certain bills made to three concerns were exceeding Rs. 20,000/- and those payments were made in cash. Therefore, disallowance under section 40A(3) deserves to be made. He accordingly disallowed a sum of Rs. 28,10,631/-. But the ld.CIT(A) harboured a belief that total purchases made from these three concerns deserves to be treated as bogus and a disallowance is to be made. The ld.counsel for the assessee pointed out to us that if these purchases are being treated as bogus, then almost 40% of the purchases would be wiped out from the total purchases, and if that be so, then how the assessee would achieve the sale target accepted by the AO. The GP rate would be increased to a figure which could not be achieved in this line of business. Alternatively, it was submitted that such issues can be baffling the Revenue authorities at different stages and travelled upto the Hon'ble High Court. He placed on record judgment of the Hon'ble Gujarat High Court in the case of CIT Vs. Gujarat Ambuja Export Ltd., Tax Appeal No.840 of 2013 wherein the Tribunal ha....
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....t be less than 25%. We have taken into consideration this aspect. We find that on the total turnover including the alleged bogus purchases, the assessee has already shown GP at the rate of 14.27%. If we further estimate 5% to 6% more than the GP on the total turnover including the alleged bogus purchase would be more than 20%. This will meet ends of justice. Therefore, we direct the AO to calculate net profit at 5% (five percent) on the alleged bogus purchases amounting to Rs. 2,08,06,760/- and make addition to the total income of the assessee. As far as disallowance of Rs. 3.15 lakhs is concerned, the assessee has submitted complete details. The only reason assigned by the AO is that this concern failed to respond to show cause notice. Considering our above discussion on the purchases made from three parties, we direct the AO to estimate the net profit on the purchases made from these parties also. In other words, he will take 5% of net profit of Rs. 3,15,000/- and make addition to the income of the assessee. 10. Now we take penalty appeal. The ld.AO did not impose any penalty upon the assessee, though he made disallowance under section 40A(3) of the Act. However, on appeal, th....
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.... 6.1 So far as the issue involved in appeals no. 833 to 836 of 2005 is concerned, in view of the decisions cited hereinabove by learned advocate for the appellant we are of the opinion that the penalty has been wrongly imposed under Section 271(1)(c) of the Act. In the case of Krishi Tyre Retreading and Rubber Industries (supra), it has been held that as the addition had been sustained purely on estimate basis and no positive fact or finding had been had been found so as to even make the addition which was a pure guess work, no penalty under section 271(1)(c) of the Act could be said to be leviable on such guess work or estimation. We therefore answer the issue involved in appeals no. 833 to 836 of 2005 in the negative and in favour of the assessee." 18.1 At this juncture, it would be relevant to refer to a decision of the Apex Court in the case of Asst. Commissioner of Income-tax v. Gebilal Kanhaialal, HUF, [2012] 348 ITR 561 (SC) wherein, it has been held that the only condition which was required to be fulfilled for getting the immunity, after the search proceedings got over, was that the assessee had to pay the tax together with interest in respect of such undisclosed....