M/S JAYESH METAL CORPORATION,MUMBAI vs. ITO 19(2)(1), MUMBAI

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ITA 2401/MUM/2019Status: DisposedITAT Mumbai19 June 2020AY 2010-114 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal found that a 12.5% disallowance was excessive for the profit element in the business. It directed the Assessing Officer to restrict the disallowance to 5% of the alleged non-genuine purchases.

What were the facts?

The assessee, a metal trading firm, had its assessment reopened based on information about accommodation bills. The Assessing Officer treated purchases as non-genuine but restricted disallowance to 12.5%. The CIT(A) upheld this.

What were the issues?

The primary issue was the reasonableness of the percentage of disallowance on non-genuine purchases, considering the profit margins in the metal trading business.

Which sections of the Income-tax Act were involved?

Section 147,Section 143(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “SMC–III”BENCH, MUMBAI

Before: SHRI SAKTIJIT DEY

For Appellant: Shri Satish Mody
For Respondent: Smt. Kavita Puneet Kaushik

The aforesaid appeals by the assessee are directed against two separate orders, both dated 22nd February 2019, passed by the learned Commissioner of Income Tax (Appeals)–3, Mumbai, pertaining to the assessment year 2010–11 and 2011–12.

2.

The solitary common dispute in both the appeals relates to the addition made on account of non–genuine purchases.

3.

Brief facts, which are more or less common in both the assessment years are, the assessee, a partnership firm, is engaged in 2 Jayash Metal Corporation the business of trading in ferrous and non–ferrous metals. For both the assessment years under dispute, the assessee filed its return of income in regular course. Returns of income were initially processed under section 143(1) of the Income Tax Act, 1961 (for short "the Act"). Subsequently, on the basis of information received from the Sales Tax Authorities through the Office of the DGIT (Inv.), Mumbai, that the assessee is a beneficiary of accommodation bills provided by certain hawala operators, the Assessing Officer re–opened the assessment under section 147 of the Act. During the assessment proceedings, the Assessing Officer called upon the assessee to prove the genuineness of purchases worth ` 1,39,50,645 and ` 50,48,424, claimed to have been made in assessment years 2010–11 and 2011– 12 respectively. Though, the assessee by furnishing certain documentary evidences tried to impress upon the Assessing Officer that the purchases are genuine, however, the Assessing Officer was not convinced. Ultimately, though, the Assessing Officer treated the purchases made in both the assessment years as non–genuine, however, instead of disallowing the entire purchases, he restricted the disallowance to 12.5% of the purchases. Against the disallowance so made, the assessee preferred appeals before the first appellate authority. However, learned Commissioner (Appeals) sustained the additions made by the Assessing Officer.

3 Jayash Metal Corporation

4.

I have heard the learned Counsels appearing for the parties and perused the material on record. The only submission made by the learned Counsel for the assessee is, the disallowance made @ 12.5% is high and excessive considering the profit element involved in this particular nature of business which, according to him, varies between 2% and 5%. Thus, he submitted, the disallowances made @ 12.5% have to be suitably scaled down.

5.

Per contra, the learned Departmental Representative supported the disallowances made by the Assessing Officer.

6.

Having considered rival submissions, I may observe that the dispute in the present appeal is only confined to reasonable percentage of profit element embedded in the alleged non–genuine purchases which can be considered for disallowance. Looking at the fact that the assessee is a dealer in ferrous and non–ferrous metals and keeping in view the decisions of the Tribunal in case of other assessees involved in similar nature of business, I am of the considered opinion that disallowance @ 5% of the alleged non–genuine purchases in both the assessment years will be reasonable and would meet the ends of justice. Accordingly, I direct the Assessing Officer to restrict the disallowance to 5% of the alleged non–genuine purchases

4 Jayash Metal Corporation in both the assessment years under dispute. Grounds are partly allowed.

7.

In the result, both the appeals are partly allowed. Order pronounced through circulation in notice board under rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963 on 22.06.2020.

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