GANPAT METALS PVT. LTD.,MUMBAI vs. ITO 5 (1)(2), MUMBAI

The brief facts of the case as emanating from records are: The assessee is a trader in ferrous and non-ferrous metal. Assessment in the case of assessee for AY 2009-10 was re-opened on the basis of information received from the Sales Tax Department, Government of Maharashtra. As per the information received, assessee has obtained bogus purchase bills aggregating to Rs. 84,38,977/- from six dealers declared as hawala operators. The Assessing Officer (AO) issued notice under section 133(6) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) to the said dealers on the addresses furnished by the assessee. The notices were received back unserved from the postal authorities. No transport receipts, inward register and stock register, etc. were produced by the assessee to prove trail of goods. The AO estimated Gross Profit (GP) at 12.5% on bogus purchases and made addition of Rs. 10,54,872/-.

Ms. Smita Verma representing the Department vehemently defended the impugned order and prayed for dismissing the appeal of assessee. The ld. DR submitted that the assessee has failed to prove genuineness of the purchases and the dealers. The AO and CIT(A) have been fair and reasonably in estimating profit embedded in non-genuine purchases.

Submissions made by ld. DR heard, orders of authorities below examined. Undisputedly, the assessee has failed to discharge its onus in proving genuineness of purchases from alleged hawala dealers. Under such circumstances, entire alleged bogus purchases cannot be added. It is only the profit embedded in such transactions that has to be brought to tax. The assessee is a trader in ferrous and non-ferrous metals. Generally, the GP in such business is ranges between 5% to 8%. Estimation of GP at 12.5% by AO/CIT(A) is on higher side. The estimation of GP at 6% on bogus purchase would meet the ends of justice. The impugned order is modified accordingly. The ground no. 3 & 4 of appeal are partly allowed in the aforesaid terms.

In ground no. 1 & 2 of appeal, the assessee has assailed re-opening of assessment under section 148 of the Act. The assessee had assailed re-opening of assessment before the CIT(A), as well but remained unsuccessful. I find no reason to interfere with the findings of CIT(A), hence, the same are upheld. Consequently, ground no. 1 & 2 of the appeal are dismissed.

The assessee in appeal has also assailed initiation of penalty under section 271(1)(c) of the Act. Challenge to the penalty proceeding at this stage is premature, therefore, ground no.5 of the appeal is dismissed.

In ground no.6 of appeal, the assessee has challenged charging of interest under section 234A, 234B, 234C & 234D of the Act. Charging of interest is mandatory and consequential, hence, this ground is without any merit, ergo, dismissed.

In the result, appeal of the assessee is partly allowed.