M/S DHANLAXMI STEEL DISTRIBUTORS,MUMBAI vs. ITO 19(1)(4), MUMBAI

The present Appeal has been filed by the assessee against the order of Ld. Commissioner of Income Tax (Appeals) - 5 in short referred as ‘Ld. CIT(A)’, Mumbai, dated 24.04.2019 for Assessment Year (in short AY) 2009-10.

The brief facts of the case are that assessee filed its return of income on 22.08.2009 declaring total income of Rs. 65,080/-. The return was processed u/s 143(1) of the Act. Subsequently, information was received from the sales tax Department that assessee is indulged in bogus purchases. On verification, the details of accommodation entries availed by the assessee is given below:- Hawala Parties Amount in Rs. Newzone Multi Trade Pvt. Ltd. 9,53,457/- Rajendra Impex India 29,31,709/- Total 38,85,166/- Accordingly, the Assessment was reopened u/s 147 of the Act by issuing notice u/s 148 of the Act and thereafter, the assessment was completed u/s 143(3) r.w.s. 147 of the Act determining the total income at Rs. 5,50,730/- after making addition of Rs. M/s Dhanlaxmi Steel Distributors 4,85,646/- being 12.5% on account of total non-genuine purchases of Rs. 38,85,166/-.

Aggrieved by the above order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the submission of assessee and by relying on the judicial pronouncements, sustained the addition @ 12.5% made by AO and dismissed the appeal of the assessee.

Aggrieved with the above order, assessee is preferred the appeal before us.

Considered the submission of Ld. DR and material placed on record, we notice that ITAT Mumbai Bench in the case of Heeramaneck & Son Vrs. ACIT passed in wherein it was held as under:- 5. So far as the quantum of additions are concerned, we are of the considered opinion that the assessee was engaged in trading activities, which could not be carried out without actual purchase of material. The turnover achieved by the assessee has not been disputed or disturbed by the revenue and the payments were through banking channels. The assessee was in possession of primary purchase documents and was able to reconcile M/s Dhanlaxmi Steel Distributors the quantitative details. However, at the same time, the stated purchases were under grave doubt since the assessee could not produce any of the party to confirm the transactions and the information received from investigation wing revealed that all the suppliers were engaged in carrying out only paper transactions without actual delivery of material. The complete onus to prove the purchases conclusively was on assessee, which has remained un-discharged. In such a scenario, the addition, which could be made, was to account for profit element embedded in these purchase transactions to factorize for profit element earned by assessee against possible purchase of material in the grey market and undue benefit of VAT against alleged bogus purchases, which lower authorities have rightly done. However, considering GP rate of 10.59% already reflected by the assessee as well as VAT rate applicable to the goods being dealt with by the assessee, we find the estimation to be on the higher side and therefore, we restrict the same to 3% of alleged bogus purchases of Rs.1,87,08,961/-. The same comes to Rs.5,61,269/-. The order of Ld. AO stands modified to that extent. The Ld. AO is directed to re-compute the income of the assessee in terms of our above order. 7. Therefore, respectfully following the aforesaid decision, we notice that assessee has already declared GP ratio @ 4.89% M/s Dhanlaxmi Steel Distributors from the purchases made from Prakash Steel & Allies and others respectively. We notice from the record that Ld. CIT(A) has sustained the addition made by the AO on estimating @ 12.5% of the alleged bogus purchases overlooking that assessee has already declared GP ratio @ 4.89% as submitted by assessee. As per the decision Coordinate Bench of ITAT and the decision of Hon’ble Gujrat High Court in the case of CIT vrs. Smith P. Seth (2013) 356 ITR 451 (Guj), we are inclined to direct the AO to estimate the income @ 7.61% (12.5% - 4.89%) of the alleged purchases. Accordingly, the ground no. 1 raised by the assessee are partly allowed.

With regard to other grounds of appeal

In the net result, the appeal filed by the assessee stands partly allowed. Orders pronounced in the open court on 25.01.2021.