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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI RAJESH KUMAR
Per Rajesh Kumar, Accountant Member:
The present appeal has been preferred by the Revenue and Cross-Objection filed by the assessee are against the order dated 16.08.2018 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2011-12.
The only issue raised by the Revenue in this appeal is against restricting of the addition made by CIT(A) to 12.5% on bogus purchases as against the addition of 100% made by the AO. While the assessee by way cross objection has challenging the maintainability of the appeal of the revenue on the ground that the tax effect involved is below 50 lacs. The assessee has also challenged the addition @12.50 as sustained by the ld CIT(A).
The facts in brief are that the assessee filed his return of income on 28.09.2011 declaring total income of Rs.10,32,483/- which was processed u/s 143(1) of the Act. The case of the assessee was reopened u/s 147 of the Act by issuing notice u/s 148 by the AO after receiving information from DGIT (Inv.), Mumbai that the assessee is beneficiary of hawala purchase entries to the tune of Rs.8,11,070/-. The AO issued show-cause notice to the assessee to prove the genuineness of the purchases by furnishing bills,vouchers and payment details etc and failing which why the same should not be added to the total income of the assessee. Accordingly the assessee filed a copy of bills, vouchers and quantitative details, transport receipts of parties namely Asian Tube Trading, Rajeswari Enterprise and Ambika Sales Corporation, evidences of payments through banking channels and other evidences to prove the genuineness of evidences furnished by the assessee and consequently treated the entire purchases as bogus on the ground that the assessee has not proved the genuineness of the same.
In the appellate proceedings, the ld. CIT(A) partly allowed the appeal of the assessee by restricting the addition qua to 12.5% of the alleged bogus purchases by following the decisions of Hon’ble Gujarat High Court in the case of CIT vs. Simit P. Sheth reported in 356 ITR 451 and in the case of M/s Bholanath Poly Fab. P. Ltd. reported in 355 ITR 290.
So far as the ground no. 1 in cross objection is concerned , we do find any merit in the same as the Circular No.03 of 2018 dated 11.07.2018 as amended by Circular No. 17 dated 08.08.2019 is not applicable to the revenue appeal as it is specifically provide in the exception that where the re-opening is done on the basis of third party information or third agency it is not applicable to the revenue’s appeal even if the tax effect is less than lacs. Accordingly the ground no.1 of the cross objection is dismissed.
6.The issue raised by the revenue in the various grounds of appeal is qua addition of bogus purchases sustained @ 12.50% by ld CIT(A) whereas the assessee has challenged the sustenance of the addition in respect of bogus purchase @12.50 in the ground 2 of the cross objection.
7. After hearing both the parties and perusing the material on record, we observe that in this case the undisputed facts are that the assessee was beneficiary of hawala purchase entries to the tune of Rs.8,11,070/-. Though ,the assessee has tried to substantiate and prove the genuineness of the purchases, the AO treated the entire purchases as non genuine and added the same to the income of the assessee on the ground that these purchases were made from hawala dealers who were engaged in issuing bogus purchase bills only without doing any actual business. The AO however did not doubt the genuineness of the sales. The ld. CIT(A) partly allowed the appeal of the assessee by reducing the addition by applying 12.5% on the bogus purchases by following the decision of CIT vs. Simit P. Sheth and M/s Bholanath Poly Fab. P. Ltd(supra). In this case, we observe that the assessee is doing the business of boiler tube manufacturing and trading thereof and during the year the assessee has g.P. of 21.17%. Considering these facts we are of the opinion that the rate of profit as applied by the ld CIT(A) is excessive and unreasonable . Keeping in view assessee’s line of business, it would be fair and reasonable if rate of 6% on the alleged purchases is applied to assess the profit embedded therein. Accordingly we set aside the order of CIT(A) and direct the AO to apply rate of 6%.
In the result, the appeal of the Revenue is dismissed and CO of the assessee is partly allowed.
Order pronounced in the open court on 29.01.2020.