ITO 20 (3)(2), MUMBAI vs. ABDUL MAJID CHOUDHARY,L/H OF LATE SAIFULLAH MOHD. RAZA CHUDHARY, MUMBAI

The only effective issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in restricting the addition made on account of bogus purchases of 5% of value thereon as against 12.5% made by the ld. AO in the facts and circumstances of the instant case.

None appeared on behalf of the assessee. We have heard the ld. DR and perused the materials available on record. We find that assessee is a proprietor of M/s. Choudhary Steel engaged in the business of dealing in Iron and Steel. The assessee filed his return of income on 29/09/2009 for the A.Y.2009-10 declaring total income of Rs.1,80,859/-. The assessee had made purchases from six parties listed in page 2 of the assessment order totalling to Rs.66,68,422/-. The ld. AO observed that these parties’ names appear in the website of Government of Maharashtra, Sales Tax department as tainted dealers, which information was passed on by the Sales Tax department to the Investigation Wing, which eventually triggered the reopening of assessment in the case of the assessee. The ld. AO observed that the sales made by the assessee out of purchases made from the aforesaid parties were genuine and accordingly, proceeded to estimate the profit element embedded in the said purchase transactions @12.5% and completed the assessment. This profit element was reduced to 5% by the ld. CIT(A). We find that the ld. CIT(A) had resorted to estimate profit percentage at 5% considering the prevailing industry practice and also placing reliance on the Co-ordinate Bench decision of this Tribunal in the case of Prashant Enterprises in dated 24/02/2016. We find that the sales made by the assessee out of the aforesaid purchases are not doubted by the ld. AO. It could be safely concluded that assessee could have made purchases only from the grey market in order to have savings in VAT. The VAT rate prevailing for Iron and Steel is 4%, the incidental profit that should have been earned by the assessee due to cash purchases could be reasonably estimated at 1%. Hence, we do not find any infirmity in the order of the ld. CIT(A) estimating the profit percentage at 5% on the value of ingenuine purchases. Accordingly, the grounds raised by the Revenue are dismissed.

In the result, appeal of the Revenue is dismissed.