SHRI. PRAVEEN SINGH CHANDAN SINGH DEWAL,MUMBAI vs. ITO 19(2)(5), MUMBAI

Assessee in its appeal has raised following grounds: - “On the facts and in the circumstances of the case and in law the Hon'ble CIT(A) erred in enhancing the addition made by the Ld AO of Rs. 19, 37,782/- to Rs. 1,55, 02,257/- by wrongly treating 100%

At the outset, it is observed that filing of appeal is time barred by three days and the assessee filled petition for condonation of delay stating that assessee’s mother was seriously ill and suffering from heart ailment and earlier chartered accountant deserted the assessee and did not advise him to compile the details, thus the appeal could not be filed in time. It is submitted that the due date for filing of appeal before the Tribunal was 25.02.2020 and the appeal was filed on 28.02.2020 and therefore there is three days’ delay in filing of appeal. Ld. DR has no serious objections in condonation of delay.

On hearing both the sides and perusing the affidavit filed by the assessee and for the reasons stated for delay in filing of appeal, that assessee’s mother was seriously ill and suffering from heart ailment and earlier chartered accountant did not advise the assessee to compile the details to file the appeal in time, in view of the above I admit the appeal by condoning the delay of three days in filing the appeal.

Ld. Counsel for the assessee placing reliance on the decision of the Coordinate Bench in the case of Shri Pravin C. Bokadia v. ITO in ITA.No. 3552/Mum/2019 dated 17.07.2020 submits that identical issue has come up before the Coordinate Bench wherein the Ld.CIT(A) enhanced the addition to 100% of non-genuine purchases relying on the decision in the case of Shoreline Hotel Pvt. Ltd., (supra) and the Tribunal considering the decision of the Hon'ble Jurisdictional High Court in the case of M. Haji Adam & Co. (ITA.No. 1004 of 2016 dated 11.02.2019) directed the Assessing Officer to make the disallowance in accordance with the ratio of the decision of the Hon'ble Bombay High Court in the case of M. Haji Adam & Co. (supra). Therefore, Ld. Counsel for the assessee requested that addition be restricted to the difference between the Gross Profit that is shown by the assessee on normal purchase as against the Gross Profit

Ld. Counsel for the assessee further submitted that assuming that the assessee made purchases in grey market what was saved by the assessee by way of VAT is only 4% and in addition the probable profit element may at 1% totaling to 5%. Hence estimating the profit element at 12.5% is not justified.

Heard both sides, perused the orders of the authorities below. An identical issue has come before the Coordinate Bench in the case of Shri Pravin C. Bokadia v. ITO in ITA.No. 3552/Mum/2019 dated 17.07.2020 wherein the Ld.CIT(A) enhanced the addition to 100% of non-genuine purchases relying on the decision in the case of Shoreline Hotel Pvt. Ltd., (supra) and the Tribunal considering the decision of the Hon'ble Jurisdictional High Court in the case of M. Haji Adam & Co. (ITA.No. 1004 of 2016 dated 11.02.2019) directed the Assessing Officer 6 ITA.NO. 1348/MUM/2020 (A.Y: 2009-10) Shri Praveen Singh Chandan Singh Dewal to make the disallowance in accordance with the ratio of the decision of the Hon'ble Bombay High Court in the case of M. Haji Adam & Co. (supra). On a perusal of the Coordinate Bench decision in the case of Shri Pravin C. Bokadia v. ITO (supra), I find that the Ld.CIT(A) enhanced the disallowance to 100% of the non-genuine purchases placing reliance in the case of Shoreline Hotels Pvt. Ltd., (supra), the Tribunal noticed the distinguishing features of the Hon'ble Bombay High Court decision in the case of Shoreline Hotels Pvt. Ltd., (supra) to the cases where there is a disallowance made under non-genuine purchases and the observation of the Tribunal is as under: - “7. Upon assessee's appeal learned CIT(appeals) has enhanced the addition to hundred percent. In doing so she has referred to the honourable jurisdictional High Court decision in the case of Shoreline Hotels Pvt. Ltd.(supra). It is settled law that case law cannot be considered in isolation of the context thereof. This is duly the ratio arising of out of the decision of honourable Supreme Court in the case of Sun Engineering Works Pvt. Ltd. (198 ITR 2970. In the decision of Shorteline Hotels Pvt. Ltd. (supra) considered by the Hon'ble Bombay High Court was in context of the order passed by learned CIT(A) under section 263 of the income tax act, wherein the ITAT had upheld the order of the learned CIT, invoking his jurisdiction u/s.

The issue was expenditure incurred in the maintenance by a hotel. In contrast the present case is a case where the assessee is a dealer in steel and disallowance has been done by the Assessing Officer on a finding that the assessee has made purchases through grey market.

In our considered opinion by no stretch of imagination it can be said that there is any similarity in the facts upon which the honourable jurisdictional High Court has rendered the above said decision and the facts of the present case.”

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].

I agree with the view of the lower authorities 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 8 ITA.NO. 1348/MUM/2020 (A.Y: 2009-10) Shri Praveen Singh Chandan Singh Dewal the purchases made are from the parties as claimed, especially in the absence of any confirmations from them. Taking the totality of facts and circumstances, keeping in view the nature of business of the assessee i.e., Trading in Ferrous and Non-Ferrous metals and the submission of the Ld. Counsel for the assessee that the benefit what the assessee got by way of VAT is 4% and the probable profit element may be adopted at 1% totaling to 5%, it would be justified if the profit element embedded in those purchases are estimated at 6%. Accordingly, I direct the Assessing Officer to estimate the profit element from the non-genuine purchases at 6% and restrict the disallowance of purchases to 6% and compute the income accordingly for the assessment year under consideration i.e. A.Y: 2009-10.

In the result, appeal of the assessee is partly allowed.