ITO 29(2)(4), MUMBAI vs. SHRI NILESH NATWARLAL, MUMBAI

Shri Nilesh Natwarlal ITO – 29(2)(4), Doshi Mumbai बिधम/ D-101, Shrinath Dham Vs. CHS Opp. Dream Mall, LBS Marg, Bhandup(W) Mumbai – 400 708 स्थायीलेखासं./जीआइआरसं./ PAN No. AAAPD8477A (अपीलाथी/Appellant) (प्रत्यथी / Respondent) : अपीलाथीकीओरसे/ Appellant by : Ms. Kavita P. Kaushik, DR प्रत्यथीकीओरसे/Respondentby : Shri Aditya, AR सुनवाईकीतारीख/ : 22.10.2020 Date of Hearing घोषणाकीतारीख / : 04.11.2020 Date of Pronouncement आदेश / O R D E R PER S. RIFAUR RAHMAN (ACCOUNTANT MEMBER): The present appeal has been filed by the revenue against the order of Ld. Commissioner of Income Tax (Appeals)-40, Mumbai, in short ‘Ld. CIT(A)’ dated 25.02.2019 for AY 2011- 12.

3. Aggrieved by the above order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the case of assessee, restricted the disallowance @ 12.5% of the alleged bogus purchases with the following observations:- The AO disallowed the entire amount during the assessment proceedings an amount of Rs.1,86,74,051/- purchases from various parties by one Mr.Dharmesh Vinaykumar Shah who is not the assessee himself but by mistake, the AO added the entire amount as unexplained expenditure u/s. 69C. Hence, the same is deleted. The appellant succeeds on this ground of appeal However during the remand proceedings, the AO has worked out an amount of Rs. 21,24,584/- which the assessee purchased from the parties mentioned in the above table which are alleged to be bogus purchases. However keeping in view of the various judicial precedents in the case of Hon’ble apex court decision in the case of H.M. Esufali Adbdulali as well as Hon’ble Gujrat High Court decision in the case of Simith P. Sheth [2013][356 ITR 451(Guj.)]., wherein it was held that 12.5% being the possible profit element embedded in the purchases made through non genuine parties (bogus purchases) . Therefore, the addition made by the AO on such purchases at 12.5% is appropriate and would be justified. In case, the appellant has already shown some G.P which is less than 12.5%, the differential G.P amount may be added to the income of the assessee. Hence, the AO is directed to work out the addition after deducting the gross profit/ net profit already shown in his regular books against the proposed addition at 12.5% of the alleged bogus purchases. This ground of appeal is allowed partly.

4. Now before us, the revenue has preferred the appeal challenging the order of Ld. CIT(A) in restricting the addition on account of bogus purchases.

5. At the outset, Ld. AR appearing on behalf of the assessee submitted that the grounds raised by the revenue are squarely covered by the order of Coordinate Bench of Hon’ble ITAT in & 3339/Mum/2019 for AY 2009-10 & 2010-11 in assessee’s own case on merit, wherein the Hon’ble ITAT has sustained the order of Ld. CIT(A).

6. On the other hand, Ld. DR supported the orders passed by the revenue authorities, however he conceded the above grounds are covered by the order of Coordinate Bench of ITAT.

7. Considered the rival submissions and material placed in record. We find that the identical grounds raised in the present appeal has already been decided by the Coordinate Bench of ITAT in & 3339/Mum/2019 for AY 2009-10 & 2010-11 in assessee’s own case on merit. For the sake of clarity, which is reproduced below:-

(Investigation) to the ld. AO for which the case of the assessee was reopened. The ld.AO observed that since the suppliers names appear in the tainted list of hawala dealers, he proceeded to make addition u/s. 69C of the Act in respect of the aforesaid purchase @100% value of the purchases. Assessee submitted before the ld. CIT(A) that he had submitted before the ld. AO party- wise details of purchases exceeding Rs.25,000/-; ledger accounts of all the parties alleged as bogus; extract of bank statements highlighting the payments made to those parties; working of one to one correlation of purchases from the parties with the corresponding sales out of the said purchases, corresponding sale invoices alongwith lorry receipts / freight challans of the parties to whom goods were sold by the assessee out of the purchases alleged to be bogus and VAT audit report in Form 704. The ld. CIT(A) observed that since the sales of the assessee has not been disputed by the ld. AO, he restricted the addition to be made on account of bogus purchases to the extent of 12.5% as against 100% made by the ld. AO. The ld CIT(A) further reduced the gross profit already declared by the assessee from the estimated 12.5%. Against this order of the ld. CIT(A), the revenue is in appeal before us. We find that the case law relied upon by the revenue in the case of NK Proteins Limited had already been considered by the ld. CIT(A) in his appellate order. We find that the sales made by the assessee out of the purchases from the alleged suppliers are not disputed by the revenue. Hence, the law is now well settled that the profit percentage thereon needs to be brought to tax in respect of purchases made by the assessee from the grey market. We find that this Tribunal in number of decisions held that the estimation of profit @12.5% would be reasonable. We also further find that this Tribunal in the case of ITO vs. Babulal Jetharamji Vishnoi in for A.Y.2010-11 dated 15/01/2020 in similar facts and circumstances held that profit percentage @12.5% estimated should be further reduced by gross profit percentage already declared by the assessee. Hence, we find that this case law relied upon by the ld. AR is well founded. We direct the ld. AO accordingly. Hence, we do not find any infirmity in the order of the ld. CIT(A) granting this relief to the assessee. Accordingly, the grounds raised by the revenue are dismissed.