DCIT 15(2)(2), MUMBAI vs. INDOCEN ELECTRONIC SYSTEM P.LTD, NAVI MUMBAI

These cross appeals are arising out of order of the Commissioner of Income Tax (Appeals)]-24, Mumbai [in short CIT(A)], in Appeal Nos. CIT(A)-24/ITO-15(2)(2)/IT-201/2016-17 vide dated 02.04.2018. The Assessment was framed by the Asst. Commissioner of Income Tax, Circle-15(2)(2), Mumbai (in short ACIT/ AO) for the A.Y. 2009-10 vide order dated 16.12.2011 under section 143(3) of the Income-tax Act, 1961 (hereinafter ‘the Act’).

The first common issue in these appeals of Revenue in ITA No. 4345/Mum/2018 is against the order of CIT(A) directing the AO to restrict the addition by estimating profit at the rate of 12.5% on bogus purchases.

Briefly stated facts are that the assessee engaged in the business of repairs of PCB and Hi-Tech electronic and communication equipment. The AO received information from DGIT (Investigation), who in turn received information from Sales Tax Department, Mumbai that the assessee has made purchases from hawala parties, as listed in hawala dealers by the Maharashtra Sales Tax Department who are providing bogus

During the course of assessment proceedings and during appellate proceedings, the assessee submitted all the documentary evidences such as inward register, stock register, payment received against such sales, receipt of material purchases, account payee cheque. According to the AO, the assessee failed to establish the genuineness of the purchase for the reasons that the assessee is not maintain stock register and not keeping stock register and there no proof of transportation of goods. Accordingly, he made addition of amount as unproved purchase at Rs. 18,28,849/- being 85% of the bogus purchases as profit to the return income of the assessee. Aggrieved, assessee preferred the appeal before CIT(A), who restrict the disallowance to the extent of 12.5% amounting to ₹2,68,948/- (the CIT(A) has wrongly mentioned the figure at ₹90,598/-, which seems to be a clerical mistake, but later, the mistake has been rectified vide order dated 12.06.2018 under section 154 of the Act) of the bogus purchases by observing in Para 2.4.1.1 by following the decision in the case of CIT vs. Smith P. Seth (2013) 356 ITR 451 (Guj) by observing as under: -

We have considered the issue and gone through the facts and circumstances of the case. We noted that the CIT(A) has gone through the facts that once the AO has not doubted the sales made out of the bogus purchases, there is no other alternative except to estimate the profit and hence the CIT(A) has estimated the profit at the rate of 12.5%. We find that the CIT(A) has rightly applied the profit rate at the rate of 12.5% of the bogus purchase and we confirm the same. This common issue of both the appeals is dismissed.

The next issue assessee’s appeal is against the order of CIT(A) is as regards to reopening of assessment. For this assessee’s has raised the following ground: - "