ITO 31 (2)(3), MUMBAI vs. M/S PRESS KUNJ, MUMBAI

ORDER PER S. RIFAUR RAHMAN, A.M. The present appeal is filed by the assessee against the order of the Commissioner of Income Tax (Appeals)-42, Mumbai [in short ‘CIT(A)’] for the assessment year 2009-10 dated 29.08.2019 and arises out of assessment completed u/s 143(3) r.w.s. 147 of the Income Tax Act, 1961 (in short the Act).

M/s Press Kunj 3 ITA No. 7041/M/2019 “6.3.16 Apparently, the motive behind obtaining bogus bills is inflation of purchase price so as to suppress the profits and the profit from such transactions varies with nature of business and no uniform yardstick can be adopted for estimation of such profit. Therefore, in light of the above decisions, taking in to account the totality of the facts, it will be reasonable to estimate the profit embedded in the accommodation entries of bogus purchases as undisclosed profit of the appellant. 6.3.17 The estimations of profit embedded in accommodation entries of bogus purchases transactions @ 12.5% out of purchase price accounted, through bogus invoices have been upheld as the fair profit rate out of the bogus purchases by the Hon'ble Courts and Tribunals. Under identical facts, the Hon'ble ITAT has upheld disallowance @12.5% of such purchases in the case is of M/s Packwell Service, in ITA No, 6544/Mum/2016 The Gross Profit Ratio of the appellant has it also increased from 17:63 % to 22.37 % during the year. The Net Profit Ratio has increased from 0.48% to 2.18 %. Therefore, in light of the above decisions, taking in to account the totality of the facts, it will be reasonable to estimate the profit embedded in the accommodation entries of bogus a purchases @12.5% of the purchase amount, As it is an estimate of the profit embedded in purchase, it cannot be subject to any adjustment on account of any subsequent profit arising from the sale of the materials as held by the Hon’ble ITAT, Mumbai Bench in the decision in for AY 2009-10 in the case of M/s Muhta Markfin (P) Limited Vs. ITO-5(2)(3), has held as under: "We are of the considered view that as the profit element accounted for by the assessee in its regular books of accounts pertains to the profit which it would have made from selling the goods under consideration, therefore, the same would have no bearing on the qualification of the monetary benefit involved in making of purchases by the assessee at a lower price from the open/grey market, as in comparison to purchases made from registered dealer" 6.3.18 However, as observed earlier that no payments were made to M/s Raj Traders and M/s Nisha Enterprises during the year under consideration and the payments have been made to these parties after a long gap of about an year. In the case of M/s Bright Corporation, a part payment was made in cash during the year and an amount of Rs.12,91,022/- was paid by cheques after. Again, a long gap of about an year. Therefore, in my View, the source of expenditure incurred on the purchases corresponding to the purchases recorded in the books of account, remains unexplained. Hence, the expenditure incurred on purchases shown from M/s Raj Traders Rs.8,23,6721- M/s Nisha Enterprises, Rs.8,22,219/- and M/s Bright Corporation Rs.12,91,022/- are held as unexplained expenditure u/s 69C of the Act and consequently an addition of Rs.29,36,913/- is sustained us 69C of the Act. Further, the profit embedded in the accommodation entries of 'balance amount bogus purchases amounting to ₹5,20,150/-from M/s Bright Corporation (The expenses claimed by the appellant on account of purchases from M/s Bright Corporation Rs.18,11,172/- only, hence any disallowance has to be restricted to the extent of ₹ 18,11,172/- only) is estimated @12.5 % on such purchases and an addition M/s Press Kunj 4 of Rs.65,019/- is sustained on account of undisclosed profit. The appellant gets relief of Rs.19,73,631/- (Rs.49,75,563/- less Rs.29,36,913/- less Rs.65,019/-). 6.3.19 Consequently, the grounds 1, 2, 3, 4, 5, 6, 7 8 8 of the appeal are partly allowed.”