M/S GOLD ANCHER EXIM P. LTD.,MUMBAI vs. ACIT - 12(2)(3), MUMBAI

आदेश / O R D E R PER M. BALAGANESH (A.M):

M/s. Gold Ancher Exim Pvt. Ltd.,

2. The only issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in confirming the addition made by the ld. AO by estimating profit @12.5% on alleged bogus purchases in the facts and circumstances of the instant case.

Sr. No. Name of the party Amount (in Rs.)

M/s. Gold Ancher Exim Pvt. Ltd., documentary evidences submitted by the assessee in connection with the purchases. Ultimately, the ld. AO observed that the concerns from which assessee has made purchases belong to Shri Pravin Kumar Jain who was known to be an entry provider and accordingly, concluded that assessee had obtained accommodation bills from the aforesaid suppliers. Having said so, the ld. AO duly appreciated the fact that assessee had indeed submitted the computer generated stock register, stock movement register and the corresponding sales made out of such ingenuine purchases. Accordingly, the ld. AO observed that only profit element embedded thereon could be brought to tax and considering the industry in which the assessee is involved i.e. trading in fabrics, he estimated the profit percentage to be at 12.5% and completed the assessment. This action of the ld. AO was upheld by the ld. CIT(A).

3.2. We find that the ld. AR vehemently argued that there is no dispute that the aforesaid five suppliers had only supplied fabrics to the assessee and in support of which he enclosed certain sample invoices from the aforesaid suppliers. He also drew our attention to the fact that on fabrics there is no eligibility for levy of value added tax (VAT). He explained the logic behind estimating the profit element at 12.5% to be the VAT rate at 10% + incidental profit arising to the assessee for making cash purchase from the grey market at 2.5%. Since, there is no levy of VAT on purchase of fabrics, only incidental profit could be brought to tax. He pleaded that the incidental profit may be estimated at 1% of the value of ingenuine purchases.

3.3. Per contra, the ld. DR vehemently relied on the order of the lower authorities by stating that the suppliers were not produced by the assessee before the ld. AO and notices u/s.133(6) of the Act were M/s. Gold Ancher Exim Pvt. Ltd., returned unserved. Hence, the assessee has not discharged its onus at all to prove the veracity of the purchases.

3.4. We find that there is no dispute that assessee is trading in fabrics and that the purchases made from the aforesaid five suppliers were in respect of purchases of fabrics. It is not in dispute that the sales made out of purchases made from aforesaid five suppliers were not doubted by the Revenue. It is not in dispute that purchase of fabrics does not get eligible for levy of VAT. Hence, the profit element to be estimated on the value of ingenuine purchases should certainly exclude the VAT portion in the instant case and only incidental benefit that assessee derives by making purchases out of cash in the grey market should be ultimately brought to tax. We find that under similar circumstances, the Co-ordinate Bench of this Tribunal in the case of Max Realties LLP vs. DCIT in and ITA No. 161/Mum/2020 for A.Y.2010-11 dated 16/08/2021 had estimated the incidental profit element at 1%. Respectfully following the said decision, we direct the ld. AO to add only 1% of value of ingenuine purchases of Rs.5,67,01,954/- (i.e. Rs.5,67,019/-) and delete the remaining portion. Accordingly, the ground raised by the assessee is partly allowed.

Order pronounced on 08/10/2021 by way of proper mentioning in the notice board.