ITO-19(3)(3), MUMBAI, MUMBAI vs. SETHI MOTORS CORPORATION, MUMBAI

ORDER PER N.K. PRADHAN, A.M. This is an appeal filed by the Revenue. The relevant assessment year is 2009-10. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-7, Mumbai [in short ‘CIT(A)’] and arises out of assessment completed u/s 143(3) r.w.s. 147 of the Income Tax Act 1961, (the ‘Act’).

Though the case was fixed for hearing on 04.01.2021 and 22.02.2021, neither the assessee nor its authorized representative appeared before the Tribunal on the above dates. As there is non-compliance by the assessee, we are proceeding to dispose off this appeal after examining the materials 2 Sethi Motors available on record and after hearing the Ld. Departmental Representative (DR).

1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in restricting the addition @ 12.5% as against @ 25% made by the AO on bogus purchases despite the fact that the addition was made on basis of credible information received from DGIT (Inv.) based information supplied from sales tax authorities.

2. The appellant prays that the order of the Ld. CIT(A) on the above grounds be set aside and that of the AO be restored.

3. Briefly stated, the facts of the case are that the assessee filed its return of income for the assessment year (AY) 2009-10 on 17.09.2009 declaring total income at Rs. Nil. On receipt of information from the Sales Tax Department, Government of Maharashtra that the assessee had obtained accommodation entries to the tune of Rs.34,16,566/-, the Assessing Officer (AO) issued notice u/s 148 of the Act to the assessee. During the course of assessment proceedings, the AO issued notice u/s 133(6) to the concerned parties in the address given by the assessee. The purpose of those notices was to ascertain the genuineness of the purchases. However, those notices were returned un- served by the postal authorities with the remarks ‘not known’ or ‘no such address’ or ‘left’ etc. However, during the course of assessment proceedings, the assessee furnished before the AO the stock register, bank statement and copy of purchase and sale invoices. However, the AO was not convinced with the submission of the assessee and estimated profit @ 25% on the total disputed purchases of Rs.34,16,566/- which comes to Rs.8,54,142/-. 3 Sethi Motors Accordingly, he made an addition of Rs.8,54,142/- treating it as on account of non-genuine purchases.

4. Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). We find that vide order dated 29.05.2019 the Ld. CIT(A) by following the judgment of the Hon’ble Gujarat High Court in the case of CIT v. Simit P. Sheth (ITA No. 553 of 2012) order dated 16.01.2013 and CIT v. Bholanath Poly Fab (P.) Ltd. (ITA No. 63 of 2012) order dated 23.10.2012, directed the AO to estimate profit @ 12.5% of the alleged bogus purchases, which works out to Rs.4,27,071/- (12.5% of Rs.34,16,566/-). Accordingly, he restricted the disallowance to Rs.4,27,071/-.

Considering the above facts, the Ld. CIT(A) has rightly followed the decision in Simit P. Sheth (supra) and Bholanath Poly Fab (P.) Ltd. (supra) and arrived at a finding that considering the facts and circumstances of the case, what can be disallowed or taxed in the instant case is the excess profit element embedded in such purchases shown to have been made from the concerned parties. Rightly, the Ld. CIT(A) has directed the AO to estimate the profit 4 Sethi Motors embedded in such suspicious purchases @ 12.5%. We concur with the findings of the Ld. CIT(A).

Order pronounced in the open Court on 08/03/2021.