NILESH METEL COMPANY,MUMBAI vs. INCOME TAX OFFICER W-19(3)(1) MUMBAI, MUMBAI

The brief facts of the case as emanating from records are: The assessee is engaged in trading of ferrous and non-ferrous metals. The assessment for assessment year 2010-11 and 2011-12 were reopened on the basis of information received from DGIT(Inv), Mumbai regarding assessee’s involvement in obtaining bogus purchase bills from dealers declared as hawala operators by the Sales Tax Department, Government of Maharashtra. In assessment year 2010-11 the assessee obtained bogus purchase bills aggregating to Rs.1,72,12,521/- from ten such suspicious dealers ( in assessment year 2011-12 the assessee obtained bogus purchase bills aggregating to Rs.1,79,39,898/- from hawala operators). During assessment proceedings the Assessing Officer issued notice under section 133(6) of Income Tax Act,1961 ( in short 'the Act') to the aforesaid dealers on the addresses furnished by the assessee. However, the notices were returned back unserved by the postal authorities with the remarks ‘not known or no such address or left’. The assessee could neither produce suspicious dealers nor any confirmation from the said dealers. Further, no documentary evidence was furnished by the assessee in the form of delivery challans, transport receipts, octroi receipts, goods inwards register, stock register, etc. to prove trail of goods. In the absence of any cogent evidence to substantiate genuineness of suspicious dealers and purchases made from them, the Assessing Officer disallowed 12.5% of bogus purchases and made addition of Rs.21,51,565/-. For similar reasons the addition of Rs.22,42,487/- was made by the Assessing Officer in assessment year 2011-12. Thereafter, the assessee filed appeals before the CIT(A) for respective assessment years. The CIT(A) upheld the (A.Y 2010-11) ITA NO.5988/MUM/2019(A.Y 2011-12) findings of Assessing Officer to the extent assessee’s involvement in obtaining bogus purchase bills from hawala operators. However, the CIT(A) granted part relief to the assessee by reducing G.P already declared by the assessee from G.P estimated by the Assessing Officer i.e. 12.5% minus G.P already declared by the assessee on unproved purchases. Still aggrieved, the assessee is in appeal for both the impugned assessment years.

Shri Sanjay J. Sethi representing the Department vehemently supported the findings of CIT(A). The ld.Departmental Representative submitted that the assessee has failed to discharge his onus in proving genuineness of the dealers and purchases made from them. The CIT(A) has been very considerate in allowing the benefit of G.P already declared on unproved purchases. The ld.Departmental Representative prayed for upholding the impugned orders and dismissing appeals by the assessee.

The submissions made by ld.Departmental Representative heard, orders of authorities below examined. Undisputedly, the assessee failed to discharge his onus in proving authenticity of the dealers and the purchases made from them in both the impugned assessment years. The Assessing Officer estimated suppressed margin on unproved purchases at 12.5%. Generally, in the trade of ferrous and non-ferrous metals G.P ranges between 5% to 8%. Therefore, estimation of G.P on unproved purchases by the Assessing Officer is on higher side. In First Appellate proceedings, the CIT(A) has granted relief by reducing the G.P already declared by the assessee on unproved purchases from estimated addition of 12.5%. Taking into consideration entirety of facts I am of the considered view that ends of justice would be met if G.P on unproved purchases is restricted to 6%. The ground No.1 of both the appeal is thus, partly allowed.

In the result, appeal by the assessee for assessment year 2011-11 and 2011-12 are partly allowed.