TaxTMI 
TaxTMI 
2019 (3) TMI 800
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.... is contesting the decision of the Ld. CIT(A) in directing the AO to sustain addition @ 12.5% on the value of the alleged bogus purchases. 3. The facts relating to the issue are stated in brief. The Revenue carried out search and seizure operations in the case of a company named M/s. Satra Properties (I) Ltd., on 23-12-2010. Simultaneously, search operation was carried out in the hands of the assessee, Shri Milan H. Sanghavi on the very same day. It was noticed that Shri Milan H. Sanghavi is the proprietor of M/s. Dipen Trading Co. Another concern named M/s. P.M. Enterprises was owned by Milan H. Sanghavi (HUF). Both of these concerns are engaged in the business of trading in steel and cement. 4. In the case of M/s. Satra Properties (I) Ltd., the purchases made by them from three concerns named M/s. J.B. Interlink, M/s. P.K. Trading Co., M/s. N.B. Enterprises were accepted as bogus by M/s. Satra Properties (I) Ltd. It appears that the search parties identified the two concerns belonging to the assessees herein, viz., M/s. P.M. Enterprises and M/s. Dipen Trading Co. also as bogus billers. However, during the course of search operation, M/s. Satra Properties (I) Ltd., did not acce....
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....ts have been made to the parties by way of cheques and further the assessee was enjoying credit period of 90 days and accordingly submitted that the peak amount should be worked out by considering the credit period of 90 days. The AO did not accept the same. As per the view taken by him, the AO proceeded to work out the peak credit in both the cases. In the case of Milan H. Sanghavi (HUF), the peak amount was worked out at Rs. 386.83 Lakhs on 25-11-2009, which fell in AY. 2010-11. In the case of Milan H. Sanghavi, the peak amount was worked out at Rs. 326.37 Lakhs on 22- 10-2008, which fell in AY. 2009-10. Accordingly, the AO assessed the above said amount in the hands of respective assessees in the years mentioned above. He did not make any addition in the remaining years. 6. Aggrieved by the orders passed by the AO both the assessees filed appeals before the CIT(A). 6.1. Before the Ld. CIT(A), the assessee furnished detailed explanations and hence the Ld. CIT(A) called for a remand report from the AO. In the remand report, AO submitted that the notices issued u/s. 133(6) of the Act to the alleged suppliers was returned un-served by the postal authorities. Further, the Inspector....
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.... light of finding of .the Hon'ble Gujarat High Court in the case of CIT vs. Simit P. Sheth, 12.5% profit is found to be appropriate for ascertainment of taxable income related to such transaction. In the facts of the case, the assessing officer is directed to compute the disallowance for each of the assessment years on the basis of 12.5% of the purchases from the impugned parties in place of the unaccounted income computed on the basis of estimated peak working of unaccounted investments. The assessing officer will verify the purchases amount debited in the books of the appellant in respect of these parties in each of the assessment year while computing and giving appeal effect to this order. In light of the above the appeal is partly allowed." The Revenue is aggrieved by the orders so passed by Ld CIT(A) in the hands of both the assessees. 7. The Ld D.R submitted that the Ld CIT(A) has accepted the fact that the purchases were bogus in nature. Having held so, the Ld CIT(A) should not have directed the AO to restrict the addition to 12.50% of the value of bogus purchases. He submitted that the Hon'ble Supreme Court has sustained addition of entire amount of purchases in the ....
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....s used to purchase materials from the open market. Accordingly, the AO has taken the view that the assessees have used their unaccounted cash for making these purchases and hence computed peak amount of cash and assessed the same. 10. On the contrary, the Ld CIT(A) has taken the view that the profit element embedded in such purchases should be assessed to tax. The Ld CIT(A) has so taken the view, since the AO has accepted the sales declared by the assessees and the sales could not have been made by making purchases. Accordingly, he has estimated the profit @ 12.50% of the value of alleged bogus purchases made by these assessees in all the years under consideration. The Ld CIT(A) has drawn support from the decision rendered by Hon'ble Gujarat High Court in the case of CIT vs. Simit P Sheth (356 ITR 451). 11. Under the Income tax Act, the profit earned from the business transactions is alone taxable. Since the sales has been accepted, the corresponding purchases is required to be deducted for the purpose of arriving at profit. The assessee has shown that it has purchased materials from certain dealers, but the same has not been accepted for the reason that the said dealers have ad....