What are the proper reasons for issuing order u/s 148 & Approach while determining additions by AO?

Bright Metal Agencies vs. ITO- (ITAT-DELHI)- 30 Aug 2017

Question of facts/ matters discussed- 

1) What are the proper reason of recording before issuing order for sec 147 under section 148, 

2) What are the approach to identify percentage which can be used to make additions, if any?

Some portions of decided case law which has been referred/ used by the learned court in this matter:

Proper reason to record before issuing notice under 148-

1) Honorable High court in case Unique Metal Industries held that -“In the case at hand, as is evincible, the AO was aware of the existence of four companies with whom the assessee had entered into transaction. Both the orders clearly exposit that the AO was made aware of the situation by the Investigation Wing and there is no mention that these companies are fictitious companies..................................................What is mentioned is that these companies were used as conduits. The same has not been referred to while passing the order of rejection. The assessee in his objections had clearly stated that the companies had bank accounts and payments were made to the assessee company through banking channel. The identity of the companies was not disputed. Under these circumstances, it would not be appropriate to require the assessee to go through the entire gamut of proceedings. It is totally unwarranted. Resultantly, the initiation of proceedings under s. 147 and issuance of notice under s. 148 are hereby quashed..."

Additions made by AO by using unreasonable percentages?

2) Unique Metal Industries case it was held by the learned court on the additions made by AO "As regards the addition of 20% sustained by the ld. CIT(A) I am of the view that since purchases are not bogus the addition on this account cannot be sustained. Even otherwise the addition of 20% on the facts and circumstances is apparently too high. The ld. CIT(A) having held that tax has to be levied on real income and the profit cannot be ascertained without deducting the cost of purchases from the sales as otherwise it amount to levy of tax on gross receipt, she ought to have applied’ profit rate in this nature of trade. Estimating profit @ 20% by taking into consideration the or visions of section 40A(3) will not lead to determination of correct real income. Section 40A(3) is meant for a different purpose when the assessee has made purchases in cash. This provision cannot be applied in such cases. Once the purchases are held to be bogus then the trading results declared by the assessee cannot be accepted and right course in such case is to reject books of accounts and profit has to be estimated by applying a comparative profit rate in the same trade. Though there can be a little guess work in estimating profit rate but such profit rate cannot be punitive.”

For reading full text of the case law please refer - https://www.taxpundit.org/phocadownload/Taxpundit_Reporter/Taxpundit_Reporter_2017/September_2017/917Taxpundit67.pdf