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Income Tax Appellate Tribunal, “SMC”, BENCH
Before: SHRI R.C.SHARMA
आदेश / O R D E R PER: R.C. SHARMA, A.M. These are the appeals filed by the revenue against the separate orders of the ld. CIT(A)-38, Mumbai dated 31/07/2018 for the A.Y. 2010-11 & 2011-12 in the matter of order passed U/s 143(3) r.w.s. 147 of the Income Tax Act, 1961 (in short, the Act).
In both these appeals, the revenue is aggrieved by the order of the ld. CIT(A) for restricting the addition on account of bogus purchases to the extent of 12.5% and further giving relief on account of G.P. already declared by the assessee.
I have gone through the orders of the authorities below and found that the A.O. got information from the sales tax department regarding bogus purchases by the assessee. After considering facts of the case, the A.O. made addition by estimating the G.P. of 12.5% on such bogus purchases.
By the impugned order, the ld. CIT(A) had directed for further relief on account of the G.P. declared by the assessee in the respective assessment years. Precise observation of the ld. CIT(A) as under:
“9.3.5 In view of the given scenario, since the receipt of the material in question is not in doubt, I am in agreement with the view taken by the AO that the material in question shown as purchases through fictitious invoices in the names of the aforesaid parties, have been purchased from some other sources because without receiving such materials, the corresponding sales would not have been possible. As the sales turnover is not disputed, applying the logical corollary that there cannot be sales without purchases of materials it is a case wherein the appellant being a trader only took bills from the above parties to record in the books of the appellant the higher price mentioned in the alleged purchase invoices to inflate expenses and reduce the profits of its business though the purchases were made from open market. The material had been received from sources best known to the assessee at lesser price as it is well known that if the material is purchased without insisting on a bill, the cost is much lesser than the one for which bill is issued. Taking into account the benefit of lower price in the grey market due to non-levy of sales tax and nonpayment of income- tax and the inflation in the purchase price accounted in the books of the appellant as per the purchase invoices issued by the alleged
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3 & 72/Mum/2019 ITO Vs Shehbaz Abdulla Chawdhari suppliers/ parties and considering the entire material on record, and in accordance with the settled legal accountancy, taxation laws as well as judicial rulings, the stand taken by the AO to estimate the profit embedded in the alleged purchases in my considered opinion is justified.
9.3.6 To arrive at the quantum of profit chargeable to tax, the Judicial Authorities have held in several cases wherein similar issues of alleged bogus purchase came up for adjudication that the profit element embedded in the alleged bogus purchases has to be computed considering the nature of business activity. The Hon'ble Gujarat High Court in the case of CIT vs. Simit P. Sheth reported in 356 ITR 451 has held that there is no uniform yardstick to measure the quantum of profit element embedded in the alleged bogus purchase and will vary from case to case. The Hon'ble Gujarat High Court in the case of CIT vs. Bholanth Poly Fab Pvt. Ltd., sustained the order of Ld.CIT (A)'s action of restricting the addition to 12.5% as against 25% made by the AO. Taking into account the inadequacy of documentary evidences produced to establish genuineness of the claim of alleged purchases, inflation in the purchase price recorded in the books and cost saving benefits that appellant might have availed, considering that the appellant is a trader in iron, steel, pipes, angle channels and scraps computing the profit at 12.5% of the total bogus purchases is considered justified.
However, the Hon'ble Income Tax Appellate Tribunal "H" Bench, Mumbai in adjudicating similar issue of alleged bogus/non-genuine purchases in the case of M/s Ratnagiri Stainless Pvt. Ltd. vs. Income Tax Officer 5(3)(1), Mumbal in Assessment Year 2009-10 in its order dated 04.04. 2017 held as,
"In the immediately preceding year i.e. assessment year 2008- 09, the assessee earned GP ratio of 4.3% on total turnover,
4 & 72/Mum/2019 ITO Vs Shehbaz Abdulla Chawdhari while for the year under consideration GP ratio earned was 5.45%. In. our considered view and based on facts and circumstances of the case as discussed by us in details above, end of justice will be met in this case if GP ratio of 12.5% on alleged bogus purchases is added to income of the assessee against which credit for the declared GP ratio on the alleged bogus purchases will be granted by the AO after verification by the AO because of failure of the assessee to come forward to discharge primary onus cast upon him as detailed above for which assessee is to be blamed and in the midst of afore-stated un-rebutted allegation against the assessee and non discharge of primary onus, the declared lower GP ratio of 5.45% in the instant previous year under appeal cannot be accepted. Thus, in nut-shell we are inclined to adopt GP ratio of 12.5% on alleged bogus purchases in the instant case which in our considered view is fair, reasonable and rational keeping in view factual matrix of the case, while the assessee shall be granted credit of GP ratio declared on these bogus purchases in the return of income filed with the Revenue. The assessee gets part relief."
In the instant case, it is observed that in return filed for the assessment year, 2010-11 under consideration is G.P. ratio declared is 3.76%, while the NP ratio is 1.58%. As against these ratios, the average GP for succeeding five assessment years 2012-13 to 2016-17 is 8%, wherein the issue of bogus purchase is not found as on date. Considering, the above average G.P., facts and circumstances of the instant case in totality, and respectfully, following the aforesaid decision of the Hon'ble Jurisdictional Tribunal, I find it rational to reduce the gross profit percentage of 3.76% already offered in the return filed from 12.5% to compute the profit embedded in the alleged bogus purchases. Accordingly, the profit is computed at 8.75% (12.5-3.76=8.74 taken as 8.75%) of aggregate alleged bogus purchases of Rs.1,79,36,112/- which works out to Rs. 15,69,410/-. The AO is directed to restrict the addition to total income of the 5 & 72/Mum/2019 ITO Vs Shehbaz Abdulla Chawdhari appellant on account of profit embedded in the bogus purchases to Rs. 15,69,410/-. Accordingly, this ground of appeal is Partly Allowed.
5. I have heard the contents of the ld. DR and found that the ld.
CIT(A) has dealt with the issue threadbare and after considering of various judicial pronouncements, the G.P. declared by the assesee during the years under consideration vis a vis average G.P. declared in subsequent five years had given further relief of G.P. already declared by the assessee at 3.76% over the G.P. estimated by the A.O. for addition at 12.5%. Detailed findings so recorded by the ld. CIT(A) has not been controverted by the ld. DR as faulty. Accordingly, I do not find any reason to interfere with the order of the ld. CIT(A) for further giving relief to the extent of G.P. actually declared by the assessee.
Hence, I uphold the order of the ld. CIT(A).
Since the facts and circumstances of both the years are same, therefore, by following the reasoning giving in the appeal for the A.Y. 2010-11, I also uphold the action of the ld. CIT(A) for the A.Y.2011-12.
In the result, both the appeals of the revenue are dismissed. Order pronounced in the open court on 14th January, 2020.