ITO-26(2)(2), MUMBAI vs. SHRI. MATIULLAH KARMULLAH KHAN, MUMBAI

In this appeal, the revenue is aggrieved by the action of the ld. CIT(A) for giving further relief to the extent of gross profit declared by ITO Vs Shri Matiullah Karmullah Khan the assessee out of addition of 12.5% made by the A.O. in respect of alleged bogus purchases.

I have gone through the orders of the authorities below and found that the assessee is engaged in business of M.S. Scraps and all types of scraps. On getting information from the Sales Tax Department regarding the assessee taking bogus purchase bills, the A.O. reopened the assessment and added 12.5% of alleged bogus purchases in assessee’s income.

By the impugned order, the ld. CIT(A) has directed to A.O. to give further relief of 4% out of profit declared by the assessee. Precise finding of the ld. CIT(A) was as under:

“7.4.4 In the present facts and circumstances of the case as sales are not doubted, the case of the AO is that the appellant only took bills from the above parties to explain the purchases accounted in its books of account at higher price to inflate expenses and reduce taxable profit although the material purchase was made from grey/open market at lower prices. In the light of the above facts and circumstances of the case and the judicial pronouncements of various Judicial Authorities on the issue of alleged bogus purchase, I concur with the stand taken by the Assessing Officer that the profit element embedded in the alleged bogus purchases should be brought to tax. Taking into consideration the overall facts and legal provisions applicable to the instant case I am of the opinion that estimating the profit element embedded in the said transactions/ purchases, keeping in mind, the inflated price as per alleged purchase invoices recorded in ITO Vs Shri Matiullah Karmullah Khan the books of the appellant and cost benefits availed by the appellant and respectfully following the ratio laid down by the Hon'ble High Court of Gujarat in the case of CIT vs. Simit P.Seth reported in 356 ITR 451 and in the case of CIT vs. M/s. Bholanath Polyfab Pvt. Ltd (2013) reported in 355 ITR 290 an estimate at 12.5% of the total alleged purchases imposed by the AO is considered rational. However, in view of the fact that the appellant offered for tax the profit at NP ratio of 3.92% treated, as 4%, taking support of the maxim laid down by the Hon'ble ITAT, A Bench, Mumbal in its order dated 25.09.2017 in 6504 & 6505/Mum/2014 in the case of Kantilal C Jam, wherein the rate of profit, is taken at 12.5% less net profit declared by the appellant, the profit embedded in the alleged purchases in the present appellant's case is considered justified if computed at 8.5% (12.5% less net 4% stated above) of total alleged bogus purchase of Rs.74,23,398/-. The profit accordingly works out to Rs.6,30,989/-. The AO is directed to restrict the addition to total income to Rs.6,30,989/-. Accordingly, this ground of appeal is partly allowed.”

In the result, appeal of the revenue is dismissed.