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Income Tax Appellate Tribunal, VIRTUAL COURT
Before: SHRI C.N. PRASAD, HONBLE & Shri Vinod C. Sanghavi v. Shri Dhaval Shah Shri Sanjay J. Sethi
O R D E R PER C.N. PRASAD (JM) 1. These appeals are filed by the assessee against different orders of the Learned Commissioner of Income Tax (Appeals)–30, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 03.05.2018 and 15.10.2019 for the A.Y. 2009-10 and A.Y.2011-12 in sustaining the action of the Assessing Officer.
(A.Y: 2009-10) (A.Y: 2011-12) Shri Vinod C. Sanghavi 2. Briefly stated the facts are that, assessee an individual engaged in the business of ferrous and non-ferrous metals filed return of income on 21.09.2009 and 24.09.2011 declaring income of ₹.1,40,413/- and ₹.2,05,737/- for the A.Y. 2009-10 and A.Y.2011-12 respectively, and the returns were 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 assessments were 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 dealers 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 dealers as referred in Assessment Order. In response assessee furnished copies of ledger accounts along with copies of purchase invoices of the specified parties and bank statements and submitted that the purchases made are genuine. Assessee further submitted that the payments are made through account payee cheques as such contended that all the purchases are genuine.
(A.Y: 2009-10) (A.Y: 2011-12) Shri Vinod C. Sanghavi 3. Not convinced with the submissions of the assessee the Assessing Officer treated the purchases as non-genuine and he was of the opinion that assessee had obtained only accommodation entries without there being any transportation of materials and the assessee might have made purchases in the gray market. It is the finding of the Assessing Officer that assessee failed to produce the parties and as such the Books of Accounts remained unverifiable. Therefore, Assessing Officer treated ₹.5,63,215/- and ₹.8,31,169/- as non-genuine, being 12.5% and 25% of the total non-genuine purchases of ₹.45,05,724/- and ₹.33,24,677/- for the A.Y. 2010-11 and A.Y. 2011-12 respectively. On appeal the Ld.CIT(A) sustained the action of the Assessing Officer in estimating the Gross Profit at 12.5% for the A.Y: 2009-10. However, the Ld.CIT(A) enhanced the addition to 100% as against 25% disallowed by the Assessing Officer in so far as the A.Y. 2011-12 is concerned. Against these orders of the Ld.CIT(A) assessee is in appeal.
Ld. Counsel for the assessee reiterated the submissions made before the Ld.CIT(A). Ld. Counsel for the assessee further submitted that the assessee is in the business of trading in Ferrous and non-Ferrous Metals and the disallowance made by the Assessing Officer and sustained (A.Y: 2009-10) (A.Y: 2011-12) Shri Vinod C. Sanghavi by the Ld.CIT(A) is on higher side, thus requested to reduce the same. Learned Counsel for the assessee also placed reliance on the decision of the Tribunal in the case of Sawalchand B. Sanghvi v. ITO in ITA.No. 1184/Mum/2019 dated 13.03.2020 and submitted that the Tribunal considering various decisions and also taking note of the fact that assessee is into the business of trading in Iron and steel estimated the profit element at 2%. Therefore, he requested that the same percentage may be adopted in its case.
Ld.DR vehemently supported the orders of the authorities below.
Heard both sides, perused the orders of the authorities below. 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 (A.Y: 2009-10) (A.Y: 2011-12) Shri Vinod C. Sanghavi 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 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. trader in Ferrous and non-Ferrous Metals, it would be justified if the profit element embedded in those purchases are estimated at 4%. Accordingly, I direct the Assessing Officer to estimate the profit element from the non-genuine purchases at 4% for both the Assessment Years i.e., A.Y: 2009-10 and A.Y. 2011-12 and restrict the disallowance of purchases to 4% and compute the income accordingly.
In the result, appeals of the assessee are partly allowed.