ITO 17(3)(5), MUMBAI vs. SMT. URMILA KIRIT MEHTA, MUMBAI

O R D E R PER C.N. PRASAD (JM) 1. This appeal is filed by the revenue against order of the Learned Commissioner of Income Tax (Appeals) –28, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 26.11.2019 for the A.Y. 2011-12 in restricting the disallowance to 12.5% of purchases of ₹.3,00,948/- as against the entire purchases disallowed as non-genuine/bogus by the Assessing Officer.

(A.Y: 2011-12) Smt Urmila Kirit Mehta 2. Briefly stated the facts are that, the assessee engaged in the business of trading in M.S. Seamless Tubes and Pipes and allied goods, filed return of income for the A.Y.2011-12 on 15.09.2011 declaring income of ₹.6,49,910/- and the return was processed u/s. 143(1) of the Act. Subsequently, Assessing Officer received information from the DGIT(Inv.)., Mumbai about the accommodation entries provided by various dealers and assessee was also one of the beneficiary from those dealers. The assessment was reopened U/s. 147 of the Act based on the information received from DGIT(Inv.)., Mumbai, that the assessee has availed accommodation entries from various parties who are said to be providing accommodation entries without there being transportation of any goods. In the reassessment proceedings, the assessee was required to prove the genuineness of the purchases made from various parties as mentioned in the Assessment Order. In reply, Assessee furnished copies of ledger accounts of the purchase party, purchase bill and payment details to purchase party and submitted that the transactions are genuine. Assessee further submitted that the payments are made through account payee cheques as such contended that all the purchases are genuine.

6. Heard Ld.DR, perused the orders of the authorities below. On a perusal of the order of the Ld.CIT(A), I find that the Ld.CIT(A) considered this aspect of the matter elaborately with reference to the submissions of (A.Y: 2011-12) Smt Urmila Kirit Mehta the assessee and the averments in the Assessment Order and following the decision of the Hon'ble Gujarat High Court in the case of CIT v. Simit P. Sheth [356 ITR 451] restricted the disallowance to 12.5% of the non-genuine purchases of ₹.3,00,948/-, while holding so, the Ld.CIT(A) observed as under: - “5.7 In this context, therefore, it is pertinent to note that the High Court of Gujarat in the case of Commissioner of Income-tax v. Simit P. Sheth [2013] 356 ITR 451 (Gujarat) has held that where purchases were not bogus but were made from parties other than those mentioned in books of accounts not entire purchase price but only profit element embedded in such purchases can be added to income of assessee. In that case the Assessing Officer noticed that some of the alleged suppliers of steel to the assessee had made their statements on oath to the effect that they had not supplied the steel to the assessee but had only provided sale bills. The CIT(A) noted that the appellant-assessee may have had made the purchases from other parties in the open market. Thereupon, he retained 30 per cent of the purchase cost as the probable profit of the assessee. The ITAT was of the opinion that twelve and half per cent of the disputed purchases should be retained in the hands of the assessee as business profit. In the result, the Tribunal partially allowed the assessee's appeal. The High Court held that once the assessee's sale of "x" quantity of steel is accepted, the purchases of the same quantity had to be believed. It was held that it may be that the three suppliers from whom the assessee claimed to have purchased the steel did not own up to such sales but the vital question remains i.e. whether the entire amount of purchases should be added back to the income of the assessee or only the profit element embedded therein was to ascertained; and whether the purchases themselves were completely bogus and non-existent or that the purchases were actually made but not from the parties from whom it was claimed to have been made and instead may have been purchased from grey market without proper billing or documentation. The High Court held that in the present case when the total sale is accepted by the Assessing Officer, he could not have questioned the very basis of the purchases. That being the position, not the entire purchase price but only the profit element embedded in such purchases can be added to the income of the assessee.

(A.Y: 2011-12) Smt Urmila Kirit Mehta 5.8 I, therefore, find that in the case of the appellant as well, the ratio of the above said decision would largely apply, in as much as the fact that here also it would be a question of a reasoned estimate of the profit element embedded in the transaction. This is also based on sound logic that the embedded profit element of the transaction would be a correct approach to take, since, the rival contentions are resolved in the fine balance of convenience. This is more so because the stand of the AO in taxing the entire amount of transaction would be a classic case of executive overreach. 5.9 I have also duly considered the arguments of the AR and whereas, I find that the Ld. AR may be justified in opposing the 100% addition yet there is no plausible case that even the embedded profit element should not be taken for taxation. I have also duly noted the case laws cited by the appellant. However, on a careful perusal of the same, it is seen that rather than pin-point as to how and in what mode or manner, do these precedents, apply to the instant case, the submissions seem to be a rambling exposition on the various aspects of different case laws. Further, it is neither judicially expedient, nor prudent to superimpose the facts of the case cited by the AR to the facts of the present case. In this sense, each case is undisputedly unique and stands on different pedestal. 5.10 Further, it would be very much germane to note that in various decisions, the Hon'ble ITAT, Mumbai has held that in such cases which are essentially of trading, estimation of 12.5% profit as having been embedded in the bogus purchase transaction was held to be a fair and just outcome. Some of these decisions are quoted below:- a) Mem Impex Ex in ITA No.2660/Mum./2017. b) MP Recycling Co. in ITA No.6358/Mum./2016. c) Y.A. Mamaji Furnishing & Co. in ITA's 4756, 4757 & 4758/Mum./2014 d) Manish M Shah in ITA 2975/ Mum./2015, 5.11. In view of the above, detailed stipulation, the AO is directed to retain the addition only to the extent of 12.5% of the total bogus purchases of Rs.3,00,498/-. Hence, addition of Rs.37,562/- is confirmed and the rest is deleted. In view of the above, the only impugned issue is PARTLY ALLOWED.

(A.Y: 2011-12) Smt Urmila Kirit Mehta 7. On a careful perusal of the order of the Ld.CIT(A) and the reasons given therein, I do not find any infirmity in the order passed by the Ld.CIT(A) in restricting the addition/disallowance to the extent of 12.5% of the purchases. Grounds raised by the revenue are dismissed.

Order pronounced in the virtual court on 13.09.2021.