TaxTMI 
TaxTMI 
2021 (5) TMI 299
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.... by the assessee related to purchase from M/s Ragini Trading and Investments Pvt. Ltd. without considering the decision of Hon'ble Apex Court in the case of CIT-vs- DurgaPrasasd 82 ITR 540 even when the assessee failed to prove I the genuineness of transaction or produce the purchase parties.' '3 "On the facts and circumstances of the case and in law, the Ld CIT(A), erred in directing the AO to delete the disallowance u/s 14A of the IT Act r.w.r. 8D(ii) of Rs. 4,50,249 relying upon the decision in the case of Maxopp Investment and Cheminvest Ltd. even when the assessee could not submit the fund flow so as to establish as to how the investments have been made from the own surplus funds as on the date of investments because the assessee has also made investments in various assets out of its available funds." 3. The brief facts of the case are that the assessee filed its return of income on 28.09.2010 declaring a total income to the tune of Rs. 15,22,215/-. The assessment u/s 143(3) of the I. T. Act was completed on 22.03.2013 assessing total income to the tune of Rs. 1,13,57,910/-. A search action u/s 132 was carried out at Ushdev Group on 11.09.2014. Surve....
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....tion that though M/s. RTIPL is showing huge turnover, it is consistently reporting huge losses year after year. For example, in AY 2009-10 on a turnover of Rs. 334.55 crores it has reported a loss of (-) Rs. 6.32 crores and for Av 2010-11 on a turnover of Rs. 836.63 crores it has reported a loss of (-) Rs. 4.42 crores which further substantiates the findings of the survey action that this concern is being used for the purpose of layering of the tainted purchases. Therefore, I am of the view that solely on the ground that the assessee has routed tainted purchases through M/s. RTIPL, which has confirmed the transaction and is assessed to Income Tax as well as Sales Tax, the assessee cannot be given any special treatment which is difference from a case where the tainted purchases are directly from the suspicious hawala suppliers. 5.3 The contentions of the assessee have been duly considered. From the factual position which emerges as explained in para 5.2, there is no dispute that the credentials of the said supplier concern are not above board. The only issue to be now adjudicated is whether there are corresponding sales booked by the assessee against the said alleg....
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....r for purchase is booked only after receiving a confirmed order for sale. Neither during survey action nor during the assessment proceedings, this claim of business model has not been found to be incorrect. 5.5 It is further noted that at the time of the survey action, the soft copy of the books of accounts of the assessee were impounded which also had quantitative details of the corresponding sales booked against the purchases made. It is observed from the relevant extracts of the said books of the assessee that during the relevant year, the assessee has booked back to back sales against the purchase made from the various suppliers including M/s Ragini Trading & Investment P. Ltd. (RTIPL). It is also relevant to point out as per the tax audit report the assessee is stated to be engaged in the business of trading in steel and no adverse remark has been made by the Auditors in their Tax Audit Report in clause 28 which provides information about the quantitative details of trading in steel. 5.6 It is also observed that on making an addition of the entire purchase amount s. 52,68,07,513/- from M/s. RTIPL, the GP rate works out to an unrealistic figure 21.38% which is....
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....disclosed income of the assessee, particularly as the purchase 'had been accounted for. 'It was held that only net profit which would arise on such unaccounted 'sales can rightly be taken as the amount which could be added to the Respondent Assessor's income for the purpose of tax. 7. The grievance of the Revenue is that Section 69C of the Act is to be invoked and entire amount of undisclosed solos has to be brought to tax. We are unable to appreciate how section 69C or the Act which speaks of unexplained expenditure is all at relevant for this appeal. We are not Conceraglagith any unexplained expenditure in this case. 8. In any view of the matter, the CIT(A) and Tribunal have come to the concurrent finding that the purchases have been recorded and only some of the sales are unaccounted. Thus, in the above view, both the authorities held that it is not the entire sales consideration which is to be brought to tax but only the profit attributable on the total unrecorded sales consideration which alone can be subject to income-tax. The view taken by the authorities is a reasonable and a possible view. Thus, no substantial question law arises for our consi....
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....t margin in \ respect of the purchases from the alleged hawala/bogus suppliers, it will be of help if the decisions of the Hon'ble Courts on the issue of bogus purchases in respect of assessees which are engaged in the business of trading in iron & steel which is similar to our assessee, are examined. 5.12 The Hon'ble Gujarat High Court in the case of CIT vs. Simit Sheth (2013) 38 Taxmann.com 385 (Guj), was seized with an issue where the A.O. had found that some of the alleged suppliers of iron & steel to the assessee had not supplied any goods but had only provided sale bills and hence, purchases from the said parties were held to be bogus. The A.O. in that case added the entire amount of purchases to gross profit of the assessee. The Ld. CIT(A) having found that the assessee had indeed purchased though not from named parties but other parties from grey market, partially sustained the addition as probable profit of the assessee. The Tribunal however, sustained the addition to the extent of 12.5%. Taking into account the above facts, the Hon'ble Gujarat High Court held that since the purchases were not bogus, but were made from parties other than those men....
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.... High Court in the case of CUT v. Simit P. Sheth (2013) 356 ITR 451/219 taxman 85 Mag./38 taxmann.com 385, which has estimated disallowance @12.5% of the disputed bogus purchases to meet the end of justice. The authorities below has not brought on record industry comparables nor any rational comparability vis a vis preceding years GP ratio are brought on record. There is no allegation brought on record by Id. DR that similar additions were also made in the immediately regarding year. The assessee earned GP ratio as detailed hereunder for last three years;- Financial Year %GP 2007-08 4.3% 2008-09 5.45% 2009-10 4.9% The books of accounts were not rejected u/s. 145(3) of the 1961 Act by the Revenue, In the immediately preceding year. le. A. Y. 2008-09. the assessee earned GP ratio of 4.3% on total turnover, while for the year under consid3eration GP ratio earned was 5.45%. In our considered view and based on facts and circumstances of the case as discussed by us in details above, end of justice will be met in this case if GP ratio of 12.5% on alleged bogus purchases is added to income of the assessee against which credit for the declared GP ratio on th....
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....r while computing the additional profit. Accordingly, ground no.1 of the appeal is partly allowed." 5. On appraisal of the above mentioned finding, we find that the CIT(Appeals) has decided the matter of controversy on the basis of the decision of Gujarat High Court in the case of CIT vs. Simit P. Sheth (2013) 38 taxmann.com 385 Guj.) and on the basis of the decision in case of Ratnagiri Steels (80 taxmann.com 265). The CIT(A) has restricted the addition to the extent of 12.5% on the basis of the gross profit (G.P.) of the Assessee under year consideration shown in the regular books of accounts. The facts are not distinguishable at this stage. Taking into account, all the facts and circumstances, we are of the view that the finding of the CIT(A) has decided the matter of controversy judiciously and correctly which is not liable to be interfere with at this appellate stage. Accordingly, we affirm the finding of the CIT(A) on this issue and decide this issues in favour of the assessee against the revenue. ISSUE NO.2 6. Under this issue the assessee has challenged the deletion of the addition raised u/s 14A of the Act r.w. Rule 8D of the Rule. Before going further, we deem....
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....he assessee has actually incurred an expenditure in relation to earning of exempt income. This is as per the ratio of the decisions laid out by the Hon'ble Courts in the cases of Maxopp Investment (15 Taxmann.com 390) (Delhi HC), Cheminvest Ltd ITA No 749/2014) (Delhi HC) and Hero Cycles Ltd (323 ITR 518) (P & H HC). Once it is found that the assessee has incurred an expenditure in relation to earning of exempt income, the quantum of disallowance u/s 14A can be computed by the AO by applying rule 8D if the AO is not satisfied with the correctness of the claim made by the assessee as regards to the quantum of disallowance offered by it. A mechanism has been implicitly provided in Rule 8D to apportion expenses between the taxable income and the exempt income and by applying it, the indirect expenses related to exempt income can be reasonably quantified for the purpose of disallowance u/s 14A. The contention of the assessee that the AO has not recorded her satisfaction as to why the computation of suo moto disallowance offered by the assessee is not correct and therefore, the said disallowance is not valid is rejected since, the AO after noting that the assessee is maintaining com....