DCIT-7(2)(2),, MUMBAI vs. M/S. NEW AGE FIRE PROTECTION ENGINEERING PVT. LTD.,, MUMBAI

This appeal in A.Y.2011-12 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-16, Mumbai in appeal No.CIT(A)-16/ACIT-7(2)(2)/IT-16/2016-17 dated 24/12/2018 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to M/s. New Age Fire Protection Engineering Pvt. Ltd., as Act) dated 01/03/2016 by the ld. Asst. Commissioner of Income Tax, Circle 7(2)(2), Mumbai (hereinafter referred to as ld. AO).

The only 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 to 12.5% of value thereon as against 25% added 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 private limited company engaged in trading and export of fire fighting equipments to Public Sector companies and for exports. It is not in dispute that assessee had made certain purchases from five parties totalling to Rs.35,92,013/- whose names appeared to be tainted dealers in the website of Sales Tax department of Government of Maharashtra pursuant to which the assessee’s case was sought to be reopened. The assessee filed the requisite details before the ld. AO and the ld. AO observed that assessee in the instant case was not able to prove the veracity of purchases made from aforesaid five parties, however, had furnished details of corresponding sales made thereon. In other words, the sales made by the assessee out of the corresponding disputed purchases have been proved by the assessee in the instant case and the same was not disputed by the ld. AO. The ld. AO proceeded to bring to tax the profit element embedded in the value of such disputed purchases and such profit element was estimated at 25% and accordingly, the ld. AO made an addition of Rs.8,98,003/- in the assessment. The ld. CIT(A) by placing reliance on the decision of the Hon’ble Gujarat High Court in the case of Vijay M Mistry Constructions Ltd., reported in 355 ITR 498 and yet another decision of Hon’ble Gujarat High Court in the case of CIT vs.

Aggrieved by this order of the ld. CIT(A), revenue is in appeal before us.

We find that assessee has not preferred any appeal before us against the order of the ld. CIT(A) as submitted by the ld. DR. It is not in dispute that the assessee could not prove the genuineness of the purchases made from five parties beyond doubt. At the same time, the sales made by the assessee out of disputed purchases have been accepted and not doubted by the revenue. Hence, it would be just and fair to tax only the profit element embedded in such disputed transaction. In this scenario, it could be safely concluded that assessee should have made purchases only in the grey market in order to have saving in some indirect taxes and the incidental profits embedded thereon. This Tribunal in series of decisions with regard to other assessees engaged in similar line of industry in which assessee is engaged in, had estimated the reasonable profit percentage on disputed purchases to be at 12.5%. For the sake of brevity, those series of Tribunal decisions are not reiterated herein. Hence, keeping in view the judicial precedents before us, we hold that the ld. CIT(A) had reasonably estimated the profit percentage at 12.5% of non-genuine purchases which would meet the ends of justice and does not warrant any interference. Accordingly, the ground raised by the revenue is dismissed.

In the result, appeal of the revenue is dismissed.