KANDARP HASMUKH SHETH,MUMBAI vs. INCOME TAX OFFICER WARD 32 2 2 MUMBAI, MUMBAI
Income Tax Appellate Tribunal, MUMBAI BENCH “J (SMC
Before: MS. PADMAVATHY S & SHRI RAJ KUMAR CHAUHANKandarp Hasmukh Sheth D-203, Soni Paradise, AM Mandir Road, Vazira Naka, Boriwali (west), Mumbai-400 092 PAN: AAEPS4442E Vs. ITO Ward 32(2)(2), C-11, 3rd Floor, Pratyakshkar Bhavan, Bandra Kurla Complex, Bandra(E), Mumbai- 400 051
PER RAJ KUMAR CHAUHAN (J.M.): 1. This appeal is filed by the appellant/assessee against the order of Learned Commissioner of Income Tax (Appeals) – Addl/JCIT (A)-2, Hyderabad [hereinafter referred to as the “CIT(A)”], passed under section Kandarp Hasmukh Sheth 250 of the Income Tax Act, 1961 [hereinafter referred to as “the Act”] dated 29.07.2024 for the A.Y. 2010-11 wherein the Ld. CIT(A) confirmed the additions made by AO of Rs. 5,15,721/- being 4% of allegedly evaded VAT tax on the suspicious purchase u/s 69C of the Act. 2. The brief facts of the case are that, the assessee is an individual and engaged in the business of trading in plastic granules and lumps and other sources. The return of income for AY 2010-11 was filed on 20.09.2010 declaring total income of Rs. 2,60,117/-. The return was processed u/s 143(1) of the Act. Subsequently, an information was received from Sales Tax Department and DGIT(Inv.), Mumbai that some businessman had indulged in the acceptance of bogus purchase bills from the bogus hawala bill providers and assessee is one the beneficiary of such bogus purchase bills and during the year under considering, the assessee had accepted bogus bills from the following parties:- TIN
NAME OF THE PARTY
AMOUNT
27230614753V
LEO IMPEX
1,268,462
27060224373V
CORAL TRADING CO
217,592
27450680107V
DHIREN MERCANTILE PVT LTD
423,852
27540680106V
ANSHU MERCANTILE PVT LTD
874,926
27370565400V
SUNRISE ENTERPRISES
2,156,102
Kandarp Hasmukh Sheth
27240652044V
KV TRADING CO
2,733,874
27580171804V
SHREE YAMUNA IMPEX
437,944
27440677542V
GOODLUCK IMPEX INDIA
819,638
27980662404V
SHALAKA INTERNATIONAL
1,390,688
27030265566V
AMAR ENTERARISE
1,028,794
27790284742V
KWALITY ENTERPRISE
239,226
27310687071V
RATNAKAR TRADERS
1,301,950
12,893,048
From the above facts, the AO had reason to believe that income has escaped assessment within the meaning of section 147 of the Act and accordingly, notice u/s 148 dated 04.03.2015 was issued for reopening of assessment. In response, the assessee furnished the details /explanations as called for. It is further alleged that during the course of the assessment proceedings, in order to ascertain the genuineness of purchases made by the assessee, notice u/s. 133(6) was issued to the above parties which were returned unserved by the postal authorities with a remark "left". During the course of assessment proceedings, assessee was asked to produce the parties and also show cause as to why the purchases made from the aforesaid party should not be disallowed. However, the assessee has failed to prove the onus relied upon him by producing the register, stock register, etc. in support of the contention that sales invoices submitted are the same Kandarp Hasmukh Sheth that were purchased from the hawala dealers. The AO found it not tenable and acceptable as the assessee failed to furnish any cogent evidence to substantiate his claim of purchases from aforesaid party. For these reasons, the AO concluded that the alleged purchases were bogus having been made from those parties which were not available and were not found existing at the addresses given by the assessee. Thus the same were bogus and non- genuine and these purchases made from these parties amounting to Rs. 1,28,93,048/- is treated as bogus purchase. The Ld. AO estimated the gross profit on the above said bogus purchases @ 13.5% being the possible profit out of the purchases made through non-genuine parties known as tainted purchases. While making the estimation of gross profit, the Ld. AO kept in mind the gross profit declared by the assessee @ 5% for the current /relevant year. Hence an addition of Rs. 16,11,631/- being 12.5% of Rs. 1,28,93,048/- the amount of bogus purchases. The break-up of 12.5% has been shown/included (estimated hidden GP of 8.5% and 4% of VAT). Considering the above, the total income of the assessee is computed as under:-
Total income (as declared)
Rs. 2,60,117/-
Add
Disallowance as discussed above
Rs. 16,11,631/-
Total income
Rs. 18,71,748/-
Rounded off to Rs. 18,71,750/-
Kandarp Hasmukh Sheth
4. Aggrieved by the order of AO, assessee challenged the order before the Ld. CIT(A) and while disposing the appeal the Ld. CIT(A) observed that the appellant has made purchases from the grey market which gives the appellant saving on account of non-payment of tax (VAT) and other at the expense of exchequer. Regarding the estimation of embedded profit, the Ld.
CIT(A) observed that “As regards the quantification of the profit element embedded in making of such bogus purchases by the appellant, I find that as held by Hon’ble High Court of Bombay in recent judgment Pr. CIT vs.
M. Haji Adam & Co. (ITA No. 1004/2016 dated 11.02.2019), the addition in respect of bogus purchase is to be limited to the extent of bringing the gross profit rate on such purchases at the same rate as on other genuine purchases.” The Ld. CIT(A) has reproduced the finding of the Hon’ble High
Court in para no. 7.3.2 and disposed the issue in para no. 7.3.3 as under:-
“7.3.3. I respectfully following the aforesaid Judgment of the Hon'ble High Court and in view of the facts of the case, I also find that Gross Profit for the genuine purchases was offered as 4.93% and same of suspicious purchases was offered as Rs.4.99% and since Gross Profit at the similar rate has already been offered and taxed, no further addition is required to be made in this regard. However, it is also a fact that the appellant has made purchases to the extent of Rs.1,28,93,048/- from the grey market and evaded taxes in the form of VAT and Kandarp Hasmukh Sheth others at the expense of the exchequer, therefore, this evasion of VAT at the rate of 4% should also be taxed on bogus purchases made by the appellant. Accordingly, the addition of Rs.5,15,721/- (4% of Rs.1,28,93,048/-) is hereby confirmed u/s 69C of the Act and the remaining addition of Rs. 10,95,910/- is hereby deleted.
Accordingly, the ground no.3 of the appeal is partly allowed.”
5. Aggrieved by the impugned order, the assessee preferred the appeal before us and has raised the following grounds of appeal:-
1. The order dated
29/07/2024
bearing
No.
ITBA/APL/S/250/2024-
25/1067112137[1] passed by the Hon'ble CIT[A]-ADDL/JCIT [A]-2, HYDERABAD, is excessive, unreasonable, arbitrary, against the provisions of Income Tax Act,
1961 and therefore liable to be quashed. FOND AM
2. On facts and circumstances of the case and in law, the Honorable C.I.T.(A) has erred in confirming the addition of Rs.5,15,721/- being 4% of alleged suspicious purchases under section 69C of Income Tax Act, 1961. 3. The appellant craves to alter, add, delete, substitute, or modify and other grounds of appeal..
6. We have heard Ld. AR and Ld. DR and examined the record. Ld. DR had relied upon the order of the Ld. AO and stating that the Ld. AO has considered all the materials and documents and reached to the right conclusion that the assessee has failed to substantiate the creditworthiness and identity of the parties and genuineness of the transactions and has found the alleged purchase from those parties as bogus purchase. It is Kandarp Hasmukh Sheth further submitted that the Ld. CIT(A) has rightly followed the settled law and confirmed the addition u/s 69C of the Act and submitted for dismissal of the appeal filed by the assessee. The Ld. DR further submitted that the Hon’ble Jurisidictional High Court in PCIT vs. Kanak Impex (India) Ltd.
(2025) 172 taxmann.com 283 (Bom) ITA No. 791/2021 order dated March
3, 2025 was pleased to hold that on account of bogus purchases, the Assessing Officer was justified in making addition of entire amount of bogus purchases u/s 69C of the Act. It is therefore stated that there is no merit in appeal and the same be dismissed.
7. On the other hand, Ld. AR on behalf of the assessee submitted that the revenue has not challenged the order of Ld. CIT(A) and therefore reliance on ITA No. 791/2021 order dated March 3, 2025 by the Ld. DR is misplaced. Ld. AR further submitted that the addition of 4% VAT alongwith self declared 4.99% profit on the alleged bogus purchases by the appellant has resulted into miscarriage of justice as there was no justification with respect to allegedly evaded 4% VAT tax addition as there was no material in that regard before the Ld. CIT(A).
8. We have considered the rival submissions and examined the material placed on record. The arguments advanced on behalf of the revenue are Kandarp Hasmukh Sheth quite convincing and the Ld. CIT(A) has based his judgment on sound and convincing legal reasoning supported by settled legal precedents while making addition on account of evaded VAT tax @ 4% i.e. Rs, 5,72,721/-. For these reasons, we are not convinced by the arguments advanced by the Ld.
AR and there is no legal infirmity in the findings returned by the Ld. CIT(A) and accordingly the grounds raised by assessee/appellant are rejected.
9. In the result, the appeal is accordingly dismissed in above terms.
Order pronounced in the open court on 02.05.2025. (MS. PADMAVATHY S)
(RAJ KUMAR CHAUHAN)
(ACCOUNTANT MEMBER)
(JUDICIAL MEMBER)
Mumbai / Dated 02.05.2025
Dhananjay, Sr.PS
Copy of the Order forwarded to:
The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //// BY ORDER
(Asstt.