ITO 6 (2)(1), MUMBAI vs. CHIRAG MINING WORKS PVT. LTD., MUMBAI

This appeal by the Revenue is directed against the order of Commissioner of Income Tax Appeals-12 Mumbai, [in short “CIT(A)] dated 24.01.2019 for the assessment year 2011-12.

Shri. LoveKumar representing the department submitted that the assesse has indulged in obtaining bogus purchase bills from declared Hawalaoperaters. The assessment for assessment year 2011-12 of assessee was reopened on the basis of information received from Sales Tax Department,Government of Maharastra, as well as DGIT (Investigation) Mumbai, As per information received, the assesse had obtained bogus purchase bills amounting to Rs.2,52,25,200/- from various (3) Hawalaoperaters. During the course of assessment proceeding the assesse failed to prove genuineness of the dealers and authenticity of the purchases made from them. The notice sent by Assessing Officer under Section 133(6) of the Income Tax Act 1961 [in short “the Act”] were received back unserved from Postal Authorities with remarks “not known” or “left”. No documentary evidence viz: Lorry receipts, stock registers, etc.was furnished by the assesse to substantiate movement of goods. The AO made G.P. addition at the rate of 12.5% of the unproved purchase. In First Appellate proceedings the CIT(A) restricted the G.P. addition to 5%. The Revenue is in appeal against the findings of CIT(A) restricting G.P. addition to 5%. The learned Departmental Representative vehemently defended the assessment order and to support his contentions placed reliance on the decision in the case of Simit P. Sheth 256 ITR 451 (Gujrat).

Onthe other hand, Shri. KetanSheth director of the respondent assesse appeared in person and supported the order of CIT(A).

Both sides heard, orders of the authorities below examined. The short issue in appeal before us is the estimation of G.P. addition on bogus purchase. Undisputedly, the assesse failed to prove genuineness of the transactions with suspicious dealers. The AO estimated G.P. at the rate of 12.5% on unproved purchases. In appeal by the assesse, the CIT(A) restricted the G.P. addition to 5% of the bogus purchases. The CIT(A) has observed that in the preceding assessment year the net profit was 3.20% and in the assessment year under appeal the net profit declared by the assesse is 0.09%. It is only the profit element embedded in such transactions that has to be taxed. Taking to consideration, the net profit declared by the assesse in the impugned assessment year and preceding assessment year, the CIT(A) estimated G.P. rate of 5% on bogus purchase. We are of considered view that the estimation addition made by CIT(A) is fair and reasonable, hence, no interference in the impugned order is warranted. Consequently, the impugned order is upheld and the appeal of Revenue is dismissed.