KANARAM LABHUJI MODI,MUMBAI vs. INCOME TAX OFFICER, 19(2)(2), MUMBAI

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ITA 907/MUM/2023Status: DisposedITAT Mumbai20 June 2023AY 2010-20116 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal, following a coordinate bench decision, found that the addition should be restricted to the profit element. It directed the Assessing Officer to restrict the addition to 5% of the non-genuine purchases.

What were the facts?

The assessee, a steel trader, was found to have obtained accommodation entries for non-genuine purchases of Rs. 39,98,800/-. The Assessing Officer estimated a profit element of 12.5% on these purchases, leading to an addition of Rs. 4,99,850/-.

What were the issues?

Whether the entire amount of non-genuine purchases should be added or only the profit element embedded therein. The appropriate rate for estimating the profit element on non-genuine purchases.

Which sections of the Income-tax Act were involved?

Section 147,Section 143(3),Section 148,Section 143(2),Section 142(1),Section 250

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “SMC” BENCH MUMBAI

Before: SHRI PAVAN KUMAR GADALE & SHRI S RIFAUR RAHMAN

For Appellant: Mr. Navin Mishra.AR
Hearing: 15/06/2023Pronounced: 21/06/2023

आदेश / ORDER

PER PAVAN KUMAR GADALE - JM:

1.

This appeal is filed by the assessee against the order of the National Faceless Appeal Centre (NFAC)/CIT(A), Delhi passed u/s 250 of the Act. The assessee has raised the following grounds of appeal:

1. On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals)- (NFAC) erred in confirming the addition to Rs. 4,99,850/- being treating the profit element of 12.50% of the genuine purchases of Rs39,98,800/as non-genuine purchases without appreciating the law, facts and circumstances of the case The provisions of the Act ought to have been properly construed and regard being had to facts of the case no such addition should have been made. Reasons assigned by the learned Ld. Commissioner of Income Tax (Appeals)-(NFAC) are wrong and unlawful to justify the addition of Rs4,99,850/-. The same to be deleted 2. The brief facts of the case that the assessee is engaged in the business of trading in ferrous and none-ferrous steel products as Proprietor of M/s Deepak Metal corporation. The assessee has filed the return of income for the A.Y 2010-11 on 30.09.2010 disclosing a total income of Rs. 2,67,854/- and the return of income was processed U/sec143(1) of the Act. Subsequently, the Assessing Officer (AO) has received information from DGIT (Inv) that as per the sale department, the assessee has obtained accommodation entries of non-genuine purchases from a party M/s Prerna Steel of Rs.39,98,800/- and is a beneficiary. The AO has reason to believe that the income has escaped assessment and issued notice U/sec148 of the Act and the assessee has filed a letter dated 22.08.2015 to treat the return of income filed on 30-09-2010 as due compliance to notice. Subsequently the A.O. has issued notice u/s 143(2) and 142(1) of the Act along with questionnaire. In compliance to notice, the assessee has filed the details and substantiated the genuineness of the transactions. Whereas the AO has dealt on the facts and information and was not satisfied with the explanations and finally considered the profit element and has estimated the income @12.5% of non genuine purchases which worked out to Rs.4,99,850/-and assessed the total income of Rs. 7,67,704/- and passed the order u/s 143(3) r.w.s 147 of the Act dated 26.02.2016.

3.

Aggrieved by the order, the assessee has filed an appeal before the CIT(A), whereas the CIT(A) has considered the grounds of appeal, submissions of the assessee and findings of the AO but has confirmed the action of the AO and dismissed the assessee appeal. Aggrieved by the order the assessee has filed an appeal before the ITAT.

4. At the time of hearing, the Ld. AR submitted that the CIT(A) has erred in confirming the action of the AO irrespective of the fact that the assessee has submitted voluminous information/details before the lower authorities and the books of accounts are maintained and the payments have been made through the banking channel. The Ld.AR substantiated the submissions with the paper book and judicial decisions and prayed for allowing the assessee appeal. Contra, the Ld. DR submitted that the assessee has indulged in alleged bogus purchases and relied on the order of the CIT(A).

5. We heard the rival submissions and perused the material on record. Prima-facie the Ld. AR contentions are that the CIT(A) has erred in sustaining the addition @ 12.5% of the alleged bogus purchases irrespective of the fact that the assessee has submitted the details. The Ld.AR emphasized that the assessee has maintained books of accounts and referred to facts and submissions at page No3 to 16 of the paper book and in particular at page 15 Para 11 of the paper book referred to the turnover, gross profit rate and net profit rate for the earlier years and the average rate of gross profit rate is between 3% to 3.92%. Further, the Ld.AR submitted that the purchase transactions are duly supported with the details and estimating income on the said purchases is on the higher side and relied on the decision of the coordinate bench of Honble Tribunal on the identical issue in the case of Babulal Punkhraj Sanghvi Vs. ITO, in & 2557/Mum/2022 dated 19.12.2022 at Para 4 to 7 of the order read as under:

4.

The only identical issue involved in both these appeals is challenging the profit estimation made on account of ingenuine purchases.

5.

We have heard the rival contentions and perused the materials available on recordThe assessee is an individual and proprietor of Nandishwar Steel, engaged in the trading in ferrous and non-ferrous metals. It is not in dispute that assessee during the year had made certain purchases from certain parties, who were treated as tainted parties by the Sales Tax Department, Government of Maharashtra. In the opinion of the learned Assessing Officer, though assessee had furnished the relevant documents in the form of purchase invoices, bank statements evidencing payments by account payee cheques, stock registers, address of the suppliers, sales made out of purchases made from tainted parties, still the assessee could not produce the proof of delivery of goods made by those tainted suppliers to the assessee. the learned Assessing Officer also proceeded to make independent enquiries by issuing notice under Section 133(6) of the Act on this suppliers which returned unserved with remarks by the postal authorities stating either 'left', 'not traceable', not known', etc. Accordingly, assessee was confronted with these developments and thereafter, directed to produce parties for personal examination by the learned Assessing Officer, which was not complied with by the assessee. Since, the sales made by the assessee was not disputed by the learned Assessing Officer, the learned Assessing Officer thought it fit to bring to tax only the profit element embedded in the value of disputed purchases. This profit percentage was estimated by the learned Assessing Officer for A.Y2009-10 at 15% and for A.Y2010-11 at 12.5%. On first appeal, the learned CIT (A) directed the learned Assessing Officer to estimate the profit percentage at 12.5% for both the years.

Since, in the instant case sales made out of disputed purchases were not doubted by the Revenue, the only logical conclusion could be that assessee had made purchases in the grey market in order to have savings in indirect taxes and instantly, profit element thereon. Hence, it would be just and fair to bring to tax only the profit element embedded in the value of such disputed purchases. We find that this Tribunal has been consistently passing orders by estimating the profit percentage for assessee's engaged in iron and steel industry at 5%. When this was put to learned Authorized Representative, he also fairly agree for estimation of profit at 5%. Accordingly, we estimate the profit element at the rate of 5% of disputed purchases, which in our considered opinion, would meet the ends of justice. Accordingly, the ground no. 2 raised for A.Y. 2009-10 and ground no. 1 raised for A.Y2010-11 are partly allowed.

7.

In the result, both the appeals of the assessee are partly allowed.

6.

Whereas the facts in the present case, are similar and identical as discussed in the above judicial decision. Accordingly, fallow the judicial precedence and set-aside the order of the CIT(A) and direct the Assessing officer to restrict the addition @5% of the non genuine purchases. And the grounds of appeal are partly allowed in favour of the assessee.

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