ITO, 19(1)(1), MUMBAI vs. AMIT MAFATLAL SHAH, MUMBAI

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ITA 941/MUM/2019Status: DisposedITAT Mumbai10 February 2020AY 2011-126 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal found that the assessee had provided substantial documentary evidence for purchases and that sales tax had been paid on these purchases. Therefore, the addition was further restricted.

What were the facts?

The assessee, a partnership firm engaged in metal trading, had its assessment reopened based on information suggesting inflated purchases through hawala parties. The Assessing Officer (AO) made an addition by estimating profit at 12.5%. The CIT(A) restricted the addition to 8%.

What were the issues?

Whether the addition made by the AO on account of alleged bogus purchases is justified, and to what extent should the addition be restricted given the evidence provided by the assessee.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 147

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “SMC”, BENCH

Before: SHRI R.C.SHARMA, ACCOUNTATNT MEMBER

For Appellant: Shri Vimal Punmiya (AR)
For Respondent: Shri R.K. Gubgotra (JCIT-DR), Shri Vimal Punmiya (AR)
Hearing: 06/02/2020Pronounced: 10/02/2020

Revenue by Shri R.K. Gubgotra (JCIT-DR) Assessee by Shri Vimal Punmiya (AR) Date of Hearing 06/02/2020 Date of Pronouncement 10/02/2020 आदेश / O R D E R PER: R.C. SHARMA, A.M. These appeals filed by the revenue and cross objections filed by the assessee are directed against the separate orders of the ld. CIT(A)- 03, Mumbai dated 14/09/2018 for the A.Y. 2010-11 & 2011-12 Income Tax Act, 1961 (in short, the Act).

2.

Rival contentions have been heard and record perused. Facts in brief are that the assessee is partnership firm and is engaged in the business of trading in Ferrous and Non-Ferrous metal. The assessee filed his return of income for A.Y. 2010-11 on 25/09/2010 declaring total income at Rs. 9,63,794/- and for A.Y. 2011-12 on 28/09/2011 declaring total income at Rs. 19,21,540/-. Notice U/s 148 dated 30/10/2014 for A.Y. 2010-11 and dated 07/11/2014 for A.Y. 2011-12 was issued and served upon the assessee. The case was reopened on the information received by the Income tax Mumbai from Sales Tax Department through DGIT (Inv.), Mumbai that assessee was engaged in the practice of inflating the purchases through the hawala parties by taking bogus bills without delivery of goods from parties. In the reassessment proceedings, the A.O. made addition by estimating profit @ 12.5%.

3. By the impugned order, the ld. CIT(A) has restricted the addition to the extent of 8% after allowing credit for the G.P. already declared by the assessee after observing as under:

“5.1 I have considered the rival submissions. The contention of the appellant that it maintained stock register and that the purchases and sales were duly reflected in the stock

3 & 941/Mum/2019 & CO 21 & 20/Mum/2019 ITO Vs Shri Amit Mafatlal Shah register is not correct. It is seen from the Annexure-IX of the Tax Audit Report and the section 44AB of the Act that the appellant did not maintain stock register. The remarks of the auditors are reproduced below:

"The said items are of different sizes, grade and specifications and it is practically not possible to maintain the stock records. There may be some items which may be considered as principal items but in absence of stock record we are unable to give the details."

5.2 The facts in the case of Geo Life Organics vs ACIT (ITA No. 3699/Mum 2016) cited by the appellant are different from the facts of the appellant's case. In the case of Geo Life Irganics the assessee (Geo Life Organics) had produced confirmed ledger copies of concerned parties, bank account statement, purchase bills, delivery challans the genuineness of purchases. But in this case, When asked to produce evidence and details in support of the claim of purchases, the appellant did not submit the details called for and instead, as per para 7 of the assessment order, requested the AO to restrict addition to the gross profit. In the course of the appellate proceedings the AR of the appellant submitted a copy of letter which was filed on 11.03.2016 were in the appellant submitted as under:

"Kindly consider the purchases are genuine made during the course of business and assessed accordingly. To avoid the further litigation and to buy peace the assessee request for a reasonable gross profit addition on the some purchases considering the gross profit already declared in Trading Account."

5 .3 T he a p pe l l a nt s u b mi t t e d a c o py of l e t t e r s u b mi t t e d be f o re t he A O o n 19.11.2015. As per that letter, the appellant had submitted the quantitative

4 & 941/Mum/2019 & CO 21 & 20/Mum/2019 ITO Vs Shri Amit Mafatlal Shah details of purchases and sales. The AR of the appellant also submitted that the AO should have considered the Fact that the goads sold were exported and should have made a more reasonable addition.

5.4 Considering the fact that the appellant had Furnished quantitative details of purchases and sales and also the Fact that the sales of the appellant were exported, I restrict the addition to 8% of the purchases on an estimated basis.”

4. The revenue is in appeal before the ITAT against the impugned order of the ld. CIT(A). The assessee had also filed cross objections.

In the cross objections filed by the assessee, it was alleged by the ld AR that the ld. CIT(A) was not justified in upholding addition to the extent of 8% when the assessee has filed all the documentary evidences to prove the purchases, sales, movement of goods. As per the ld AR, the assessee was only doing trading business wherein substantial G.P. was declared which was reasonable to the trade in which the assessee was engaged.

5. On the other hand, the ld DR has relied on the order of the A.O.

6. I have considered the rival contentions and found that before the A.O. the assessee has filed following documentary evidences to prove the genuineness of purchases:

1.

Assessee has all bills of purchases.

3.

Supplier provided all identity of bank following KYC Norms.

4.

All sales of assessee were accepted.

5.

Without purchases sales cannot take place.

6.

Assessee accounts duly audited by Tax Auditor and VAT Auditor.

7. Delivery Challan of all purchases are duly maintained.

8.

Assessee purchases are sold to customers and balance are lying as closing stock.

9. Assessee purchases are sold to customers and correlation given by assessee.

10.

All purchase bills also had shown VAT amount which is duly paid by assessee to supplier.

11.

VAT is paid by us to the Maharashtra Government.

12.

There is no evidence than cash received back by assessee.

13.

A.O. made allegation that assessee reduced true profit through alleged purchases. If the A.O. contention is accepted than it will lead to unexpected GP which will be unpractical.

7.

However, the A.O. relied merely on Sales Tax Department information but Sales Tax Department. levied sales tax on said purchases and assessee also paid sales tax to sales tax department facts and circumstances and keeping in view the various judicial pronouncements as cited by the ld AR, I modify the orders of the lower authorities and direct the A.O. to restrict the addition to the extent of 2% of alleged bogus purchase in both the years under consideration.

9.

In the result, both the appeals of the revenue are dismissed and both the cross objections of the assessee are allowed in part, in terms indicated hereinabove.

Order pronounced in the open court on 10th February, 2020.

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