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Income Tax Appellate Tribunal, MUMBAI BENCH “H”, MUMBAI
Before: SHRI C.N. PRASAD & SHRI RAJESH KUMAR
Per Rajesh Kumar, Accountant Member:
The above titled three appeals have been preferred by the same assessee against the orders dated 29.02.2016 & 08.12.2017 of the Commissioner of Income Tax (Appeals)
The assessee has filed three appeals. The common issue in all the years raised by the assessee is against the order of Ld. CIT(A) whereby the ld CIT(A) partly confirmed the addition on account of bogus purchases @ 12.5% of the bogus purchases as against 100% made by the AO. Since the issue in all the appeals is same, therefore, we are taking up A.Y. 2009-10 first.
ITA No.2302/M/2016 A.Y. 2009-10
The facts in brief are that the assessee filed the return of income on 26.09.2009 declaring an income of Rs.12,68,920/-. The same was processed under section 143(1) of the Act. Thereafter, the AO received information from Sales Tax Department, Government of Maharashtra that assessee is beneficiary of hawala purchase entries and accordingly the case of the assessee was reopened under section 147 of the Act by issuing notice under section 148 that assessee has obtained bogus bills to the tune of Rs.5,59,52,213/- from 13 hawala parties. During the course of assessment proceedings the AO called for various details and explanation from the assessee to prove the genuineness of the purchases which were duly filed before the AO. However, the AO was not satisfied with the genuineness of the purchases on the basis of publication by the Sales Tax Department, Government of Maharashtra that all these suppliers are hawala operators and accordingly after rejecting the contentions of the assessee, applied a GP @ 12.5%
The Ld. CIT(A) partly allowed the appeal of the assessee by directing the AO to make the addition @ 12.5% by relying on the decision of Hon’ble Gujarat High Court in the case of CIT vs. Simit P. Sheth (2013) 356 ITR 451 (Guj).
Now the assessee is again in appeal before us challenging the said part confirmation of the addition.
After hearing both the parties and perusing the material on record, we observe that the assessee is a wholesale dealer and supplier of various type of paper. The Ld. A.R. submitted before us that the profit margin on these items is very meager and therefore the application of 12.5% on the bogus purchases is unfair and impractical as it was lead to unrealistic higher profit of the assessee. The ld. A.R., therefore, prayed that the GP may kindly be reduced on the basis of GP rate of the assessee which varies from 1% to 3%.
The Ld. D.R., on the other hand, opposed the contentions and arguments of the assessee by submitting that assessee is beneficiary of hawala purchase entries and therefore the AO has rightly added the entire amount as the assessee has failed to produce the necessary evidences and also to prove the genuineness of these transactions. Therefore these purchases remained unverified and rightly added to the income of the assessee. The ld. DR prayed that the appeals of the assessee may kindly be dismissed.
4 & ors Mr. Hasmukh Jagshi Visaria 8. After hearing both the parties and perusing the material on record, we find that the assessee is a wholesale dealer in all kinds of papers. During the year the assessee returned a GP of 6.25% and NP of 1.44%. The AO made 100% addition towards bogus purchases whereas the Ld. CIT(A) partly allowed the appeal of the assessee by following the decision of Hon’ble Gujarat High Court in the case of CIT vs. Simit P. Sheth (2013) 356 ITR 451 (Guj) on the ground that only profit element in the bogus purchases could be brought to tax and directed the AO accordingly. Now being aggrieved by the order of Ld. CIT(A) the assessee has stated that the GP of 12.5% as directed by the Ld. CIT(A) is excessive and unreasonable and therefore needs to be further reduced considering the profit margin of the assessee. We note that in this case the net profit of the assessee returned during the year was 1.44% whereas the GP was 6.25%. Considering all these facts of the case, we are not in agreement with the conclusion of Ld. CIT(A) on the application of GP rate of 12.5% as the assessee has already returned a GP of 6.25% since the applicable VAT is 4% and if a reasonable margin 2% is added to the VAT rate and GP rate declared is reduced, then it comes to less than 2%. Under these circumstances, we are of the view that it would be reasonable if a rate of 2% is applied on the bogus purchases. Accordingly we modify the order of Ld. CIT(A) and direct the AO to apply a rate of 2% of the bogus purchases.
Accordingly, the appeal of the assessee is partly allowed.
The issue involved in both the appeals is identical to the one as stated above in ITA No.2302/M/2016 for A.Y. 2009-10.
5 & ors Mr. Hasmukh Jagshi Visaria Therefore, our finding in ITA No. 2302/M/2016 for A.Y. 2009- 10, mutatis mutandis, would apply to these appeals as well and AO is directed to apply a margin of 2% on bogus purchases. Accordingly, these appeals of the assessee are partly allowed.
In the result, all the appeals of the assessee are partly allowed.
Order pronounced in the open court on 12.07.2021.