SAWAILAL SURTARAM BHATTI,MUMBAI vs. INCOME TAX OFFICER, 20(3)(2) , MUMBAI

आदेश / O R D E R

PER ABY T .VARKEY, JM:

2. The assessee’s main grievance is against the impugned action of the Ld. CIT(A) dismissing the appeal in limine; and then also recording a finding that appeal filed by assessee as “not maintainable”; and thereafter, proceeded to observe in the impugned order about the merits of the addition made by AO [ad-hoc addition of 12.5% on bogus purchases to the tune of Rs.3,57,38,866/- based on the report of the Maharashtra Sales Tax Department] which was passed u/s 144 r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”).

P a g e | 2 (A.Y.2010-11) SHRI SAWAILAL BHATTI 3. The brief facts as noted by the AO is that the assessee had filed his return of income for assessment year 2010-11 on 09.09.2010 declaring total income of Rs.12,78,110/- which was processed u/s 143(1) of the Act. Subsequently, the AO received information from the DGIT (Investigation)-Mumbai, that the assessee was engaged in bogus purchase activity of taking accommodation entry from hawala operators which information was based on report of Maharashtra Sales Tax Department that twelve (12) persons named in the assessment order were indulging in providing bogus purchase bills in lieu of commission. And since, the assessee had dealt/transacted with the said 12 parties and has shown to have made purchases from them to the tune of Rs.3,57,38,866/- and since, the assessee has not responded to the notices, the AO held that assessee failed to prove genuineness of the purchases from these parties. The AO, was of the opinion that if any person indulged in the practice of purchasing the goods from the grey market and thereafter obtained bogus bills, would do so for getting some benefit. Therefore, according to AO, the purchase rate as per the purchase bills from the entry-operators cannot be accepted. And according to him, the rate of purchases made in cash from undisclosed parties [from grey market] must be much lower than the rate of credit purchases on account of evasion of sales tax, other taxes and cash discount etc. Thus according to him, there must be inflation of purchases. Therefore, according to the AO, profit element embedded in such inflated purchases would be taken care of in the case of assessee, if 12.5% of the same is estimated on the bogus purchases; and so he made an addition of Rs.44,67,358/-. Aggrieved the assessee preferred an appeal before the Ld. CIT(A) who was pleased to confirm the addition at the last paragraph of the impugned order (refer para 5 of the impugned order) and he also held that since the assessee could not give sufficient cause for delay in filing of appeal, the appeal is not maintainable.

P a g e | 3 (A.Y.2010-11) SHRI SAWAILAL BHATTI of the AO on merit, pointed out that similar actions were undertaken by the AO for assessment years 2009-10 and 2011-12 which was already heard by the SMC Bench of this Tribunal on 06/02/2023 and awaiting decision.

5. Even though we heard the appeal on 09.03.2023, we take judicial notice of the order of the Tribunal passed on 10.02.2023 in assessee’s own case in & 3193/MUM/2022 for AY’s 2009-10 and 2011-12, wherein on similar facts and circumstances, this Tribunal held as under:

These appeals are filed by the assessee against different orders of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter in short “Ld.CIT(A)”] dated 18.10.2022 for the A.Ys. 2009- 10 and 2011-12 in sustaining the action of the Assessing Officer.

4. Ld. Counsel for the assessee reiterated the submissions made before the Ld.CIT(A). Ld. Counsel for the assessee further submitted that the assessee is in the business of Iron and steel and already declared the profit of 7.79% in A.Y. 2009-10 and 6.17% in A.Y. 2011-12. The applicable VAT during that period was only 4%. He prayed that the addition may be sustained at the applicable VAT rate. Further, he submitted that assessee is not pressing the Ground Nos. 1 to 4 of grounds of appeal.

6. Considered the rival submissions and material placed on record and perused the orders of the authorities below. It is not in dispute that sales have been accepted as P a g e | 5 (A.Y.2010-11) SHRI SAWAILAL BHATTI genuine from out of these purchases. When the sales have been accepted as genuine the entire purchases cannot be treated as non-genuine. The Hon'ble Gujarat High Court in the case of Bholanath Polyfab Pvt. Ltd [355 ITR 290] held that when the assessee made purchases and sold the finished goods as a natural corollary not the entire amount covered under such purchases would be subject to tax but only the profit element embedded therein. Similar view has been taken by the Hon'ble Gujarat High Court in the case of CIT v. Simit P. Seth [38 taxman.com 385]. Simply because the parties were not produced the entire purchases cannot be added as held by the Bombay High Court in the case of CIT v. Nikunj Eximp [216 Taxman.com 171]. We agree with the view of the lower authorities that there should be an estimation of profit element from these purchases and should be estimated reasonably as the assessee could not conclusively prove that the purchases made are from the parties as claimed, especially in the absence of any confirmations from them. Taking the totality of facts and circumstances, keeping in view the nature of business of the assessee i.e. trader in Iron and Steel Metals, it would be justified if the profit element embedded in those purchases are estimated at 5%. Accordingly, we direct the Assessing Officer to estimate the profit element from the non-genuine purchases at 5% for both the Assessment Years i.e., A.Y. 2009-10 and A.Y. 2011-12 and restrict the disallowance of purchases to 5% and compute the income accordingly.

7. In the result, appeals filed by the assessee are partly allowed.

Order pronounced in the open court on this 10/04/2023