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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI S. RIFAUR RAHMAN, HONBLE
O R D E R PER S. RIFAUR RAHMAN (AM) 1. These appeals are filed by the assessee against different orders of the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter in short “Ld.CIT(A)”] dated 22.12.2022 for the A.Ys. 2009-10 and 2010-11 in sustaining the action of the Assessing Officer.
2 & 326/MUM/2022 Ilesh Jitendra Shah 2. Briefly stated the facts are that, assessee an individual engaged in the business of manufacturing and reseller of hardware items, furniture and fittings and general hardware supplier filed return of income on 25.09.2009 and 19.09.2010 declaring income of ₹.2,83,112/- and ₹.2,46,178/- for the A.Y. 2009-10 and A.Y.2010-11 respectively, and the returns were processed u/s. 143(1) of Income-tax Act, 1961 (in short “Act”). Subsequently, Assessing Officer received information from the Sales Tax Department, Government of Maharashtra about the accommodation entries provided by various dealers and assessee was also one of the beneficiary from those dealers. The assessments were reopened u/s. 147 of the Act based on the information received from Sales Tax Department, Government of Maharashtra, that the assessee has availed accommodation entries from various dealers who are said to be providing accommodation entries without there being transportation of any goods. In the reassessment proceedings, the assessee was asked to prove the genuineness of the purchases made from various dealers as referred in notice . In response assessee submitted that the purchases made are genuine.
Not convinced with the submissions of the assessee the Assessing Officer treated the purchases as non-genuine and he was of the opinion
3 & 326/MUM/2022 Ilesh Jitendra Shah that assessee had obtained only accommodation entries without there being any transportation of materials and the assessee might have made purchases in the gray market. Assessing Officer issued notices u/s. 133(6) to the alleged parties and there was no response and the assessee has not produced the parties before the Assessing Officer. Therefore, Assessing Officer treated total purchases made from the alleged parties as mentioned in Assessment Order i.e., ₹.52,000/- and ₹.4,11,819/- as non-genuine for the A.Y. 2009-10 and A.Y.2010-11 respectively and added to the income of the assessee. On appeal Ld.CIT(A) after considering the submissions of the assessee, sustained the action of the Assessing Officer. Against these orders of the Ld.CIT(A) assessee is in appeal before us.
Ld. Counsel for the assessee reiterated the submissions made before the Ld.CIT(A). Ld. AR of the assessee further submitted that the assessee is in the business of manufacturing & Reseller of Hardware Items, Furniture & Fittings and General Hardware Supplier. Further, he submitted that assessee has declared G.P at 20.72 in A.Y.2009-10 and 21.83 in A.Y. 2010-11. He prayed that suitable percentage of Gross Profit may be sustained as income of the assessee.
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 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]. In view of various judicial precedents, I am of the opinion 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 5 & 326/MUM/2022 Ilesh Jitendra Shah circumstances, keeping in view the nature of business of the assessee, it would be justified if the profit element embedded in those purchases are estimated at 12.5%. Accordingly, I direct the Assessing Officer to estimate the profit element from the non-genuine purchases at 12.5% for both the Assessment Years i.e., A.Y. 2009-10 and A.Y. 2010-11 and restrict the disallowance of purchases to 12.5% and compute the income accordingly.
In the result, appeals filed by the assessee are partly allowed.
Order pronounced in the open court on 06th April, 2023.