M/S PRIME STEEL CORPORATION ,MUMBAI vs. ITO WD 19(2)(5), MUMBAI

Sh. Mahendra Sanghvi appearing on behalf of assessee submitted at the outset that he is not pressing ground No.1 assailing re-opening of assessment. In respect to Ground No.2 assailing addition on account of bogus purchases, the ld. Authorized Representative of the assessee (AR) submitted that the assessee is engaged in trading of Ferrous and Non-ferrous metals. During re-assessment proceedings, the Assessing Officer (AO) held that the assessee has obtained bogus purchase bills amounting to Rs. 1,30,40,292/- from hawala operators. The AO made addition of Rs. 16,30,036/- by estimating suppressed margin on alleged bogus purchase at 12.5%. The assessee carried the issue in appeal before the CIT(A). The CIT(A) dismissed the appeal of assessee without appreciating the facts and documents on record, hence, the present appeal. The ld. Authorized Representative submitted that estimation of Gross Profit on bogus purchases at 12.5% is very much on the higher side, the assessee had furnished various documents to substantiate genuineness of the purchases, however, same were not considered by the authorities below. The ld. AR further submitted that the AO in an arbitrary and unjustified manner rejected the books of accounts. No opportunity was given to the assessee by CIT(A) after seeking remand report from the AO. No opportunity was afforded to the assessee to cross-examine alleged hawala dealers on the basis of whose statement, the AO had made addition.

Per contra, Sh. Sanjay J. Sethi representing the Department vehemently defended the impugned order and prayed for dismissing appeal of the assessee. 5. Both sides heard, orders of authorities below examined. Undisputedly, the assessee failed to discharge its onus in proving genuineness of the dealers आअसं. 6069/मुं/2019 (िन.व.2011-12) (A.Y.2011-12) and the purchases made from them. In such like unproved purchases, it is only the suppressed profit margin that can be brought to tax. Taking into consideration nature of assessee’s business, estimation of GP at 12.5% on alleged bogus purchases is very much on the higher side. Generally, in trading of Iron & Steel, GP ranges between 5% to 8%. To meet the ends of justice, profit margin on alleged bogus purchases is restricted to 6%. I hold and direct accordingly. Consequently, ground no.2 of the appeal is partly allowed.

In ground no. 1 of appeal, the assessee has assailed re-opening of assessment. The ld. AR of the assessee stated at the bar that he is not pressing ground no.1, accordingly, the said ground is dismissed as not pressed.

The ground No.3 of appeal is against charging of interest under section 234B of the Act. The short contention of ld. AR of the assessee is that the AO may be directed to charge interest u/s. 234B of the Act in accordance with the provisions of the Act. This issue is restored to the AO with a direction to re- compute interest u/s. 234B of the Act, at a rate and period specified under the said section. Hence, ground no.3 is allowed for statistical purpose.