ITO 28 (1)(3), MUMBAI vs. DASHRATH AMRIT SINGH, MUMBAI

The only issue raised by the revenue in this appeal is as to whether the ld. CIT(A) was justified in directing the ld. AO to restrict the addition made towards gross profit of 23% of bogus purchases as against 100% of such purchases made by the ld. AO in the facts and circumstances of the instant case.

We have heard rival submissions and perused the materials available on record. We find that assessee is an individual engaged in manufacturing and resale of building materials and had filed his return of income for the A.Y.2009-10 on 29/09/2009 declaring income of Rs.5,52,120/-. The business of the assessee is being run in the name of M/s. Tirma Stone, the proprietor concern of the assessee. The assessee had disclosed income from business and income from other sources in his return of income. We find that the ld. AO observed that assessee had made purchases from M/s. R.K. Traders for Rs.1,07,598/- whose name appeared in the website of Maharashtra Sales Tax Department to be a tainted party and the said party was said to be engaged in providing accommodation bills. Since the assessee had made purchases from such tainted party and based on the information provided by the Sales Tax department of Maharashtra to the Income Tax department, the assessment for the Asst Year 2009-10 was reopened by the ld. AO. It is not in dispute that the assessee had actually consumed in his business the goods that were mentioned in the invoice of M/s. RK Traders, hence, what is to be brought to tax is only the profit element embedded in such purchases. We find that the ld. AO had taxed the entire value of purchases in the assessment as bogus in the sum of Rs.1,07,598/- as unexplained expenditure u/s.69C of the Act. We hold that no addition could be made in respect of bogus purchases u/s 69C of the Act as the basic pre-requisite for invoking the provisions of section 69C of the Act is that an expenditure should have been actually incurred but the same could not be explained by proper source. In the instant case, the ld AO had alleged that the entire transaction of purchase from M/s R.K. Traders is bogus and non-genuine. We find that the ld. CIT(A) had considered the gross profit declared by the assessee during the year at 22.05% and accordingly, estimated the addition to restrict the gross profit percentage of 23% on value of alleged purchases. Against this action of the ld. CIT(A), assessee has not preferred any appeal before us. Hence our observations made in the context of non-applicability of provisions of section 69C of the Act in the instant case would be of academic importance only. We find that this Tribunal has been holding consistently in respect of the industry in which assessee is engaged in that the adoption of profit of 12.5% would be just and reasonable. Since the assessee has not preferred any appeal before this Tribunal against the action of the ld. CIT(A), the adoption of gross profit at 23% by the ld. CIT(A) is much more than the profit percentage adopted by this Tribunal in several cases at 12.5%. In view of these peculiar circumstances, the order of the ld. CIT(A) does not warrant any interference. Accordingly, the grounds raised by the revenue are dismissed.

In the result, appeal of the revenue is dismissed.