Kamlesh Deoraj Jain Vs ITO (ITAT Rajkot)
ITAT Rajkot held that transactions of sale and purchases cannot be treated as cash credit/bogus under section 68 of the Act, if they are circular in nature. Also held that profit margin of 12.50% can never be possible in case of circular trading activities.
Facts- The assessee`s case was reopened under section 148 of the Act, on the issue that assessee could not explain, the purchase of salt of Rs. 43,75,64,479/- from M/s. Ankur Chemfood Ltd. AO rejected the contention of the assessee and held that assessee is engaged in circular transaction. Accordingly, AO made addition of Rs. 5,44,21,025/- [12.5% of total purchase of Rs. 43,53,68,202/-] as un-explained credit u/s 68 of the Income Tax Act, 1961 r.w.s 115BBE.
CIT(A) confirmed the action of AO. Being aggrieved, the present appeal is filed.
Conclusion- The Hon`ble jurisdictional High Court of Gujarat in the case of KFC Exports Private Limited held that transactions of sale and purchases cannot be treated as cash credit under section 68 of the Act, if they are circular in nature.
Held that in the assessee`s case under consideration, none of the characteristics of bogus purchases are present, as the assessee has furnished extensive documentary evidence comprises of total 1414 pages to substantiate the genuine purchase transactions, including quantitative details, goods movement, further sale transaction and profit thereon, confirmation from seller party, banking payments etc, clearly justifying that actual purchase transactions have been occurred. Further, held that even if the assessing officer’s version of circular trading is accepted, then also there is no case of the assessing officer for making any such huge and abnormal addition of 12.50% of the total purchases. Such kind of profit margin can never be possible in case of Circular Trading Activities, particularly when the assessing officer himself has held the transactions of the assessee are of circular trading.
