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Income Tax Appellate Tribunal, “D”
Before: SHRI C. N. PRASAD, JM & SHRI S. RIFAUR RAHMAN, AM
ITO - 32(1)(4), D Ketan & Co. C-10, 3rd floor, H 304, Old Ashok Nagar, बिधम/ Pratyakshkar Bhavan, 179 LT Road, Vazira Vs. BKC, Bandra East, Naka, Borivali (west), Mumbai-400 051 Mumbai-400 092 स्थायीलेखासं./जीआइआरसं./PAN No. AADFD2513L (अपीलाथी/Appellant) (प्रत्यथी / Respondent) : अपीलाथीकीओरसे/ Appellant Shri M. N. Vaishnav, AR : by प्रत्यथीकीओरसे/Respondentby : Shri Jothi Lakshmi Nayak, DR सुनवाईकीतारीख/ : 01.10.2019 Date of Hearing घोषणाकीतारीख / : 15.11.2019 Date of Pronouncement आदेश / O R D E R
Per S. Rifaur Rahman, Accountant Member:
The present Appeal has been filed by the assessee against the order of Ld. Commissioner of Income Tax (Appeals) - 44 in short referred as ‘Ld. CIT(A)’, Mumbai, dated 13.12.16 for Assessment Year (in short AY) 2009-10. D Ketan & Co 2. The brief facts of the case are that the original assessment was completed vide order u/s 143(3) of the Act dated 30.11.11 determining the total income of Rs. 11,50,294/-. AO received the information from Sales Tax Department and DGIT(Inv), Mumbai that some businessman had indulged in the acceptance of bogus purchase from the bogus bill / hawala providers. As per the above information, it was noticed by the AO that assessee is beneficiary of such bogus purchases to the extent of Rs. 1,89,39,714/-. After verification of the information submitted by assessee, AO made addition on account of bogus purchase to the extent of Rs. 23,67,467/-, interest expenditure, disallowance of late payment of sales tax & TDS and disallowance of interest on late payments to creditors.
Aggrieved with the above order, assessee preferred an appeal before Ld. CIT(A), but assessee did not pursue the matter before Ld. CIT(A), even though sufficient opportunities were given to the assessee. Accordingly, appeal of the assessee was disposed of ex-parte.
D Ketan & Co 4. Aggrieved with the above order, assessee preferred the appeal before us.
Before us, Ld. AR brought to our notice that the decision of Hon’ble Bombay High Court in the case of Pr. CIT vrs. M/s Mohommad Haji Adam & Co (ITA No. 1004 of 2016) and submitted that assessee has declared the income and the purchase relating to the business. However, by relying upon the ratio of the above decision, he submitted that AO should evaluate the Gross Profit (GP) in the normal purchase as well as in the bogus purchase and the difference alone should be brought to tax.
On the other hand, Ld. DR submitted that the present appeal filed by the assessee is against the ex-parte order and he agreed that it should be remitted back to the lower authorities.
With regard to additions, Ld. AR relied upon the submissions made before the lower authorities and he submitted before us synopsis which is reproduced below:-
1) The appellant had reasonable and sufficient reasons for the non-attendance before the learned CIT D Ketan & Co (Appeals) - 44 Mumbai, the appellant deserves one more opportunity to plead his case.
2) i. Rs. 23,67,467/- being 12.5%, profit on the alleged bogus purchases of Rs.1,89,39,741/ ii. Disallowances of Rs. 6,11,326/- u/s 36 (1)(iii)- iii. Regarding late payment of Sales Tax & T.D.S. of Rs.33,911/-. iv. Being the interest of Rs. 9,92,587/- for the late payment to the creditors.
3) The appellant is engaged in the business in Trading Iron & Steel in the name & Style of M/s D. Ketan & Co. The Gross Profit of D. Ketan & Co. is at Rs. 1,02,25,578.73/- i.e 2.35% of turnover and declared Net Profit of Rs. 10,75,294.05/- i.e 0.25% of turnover.
The appellant submitted details of purchases and few sample purchases bills along with transport receipt. The assessing officer has disallowed the genuine purchase on estimated G.P. @ 12.5% whereas appellant has declared G.P. @ 2.35% and Net Profit @ 0.25%. The books of account are duly audited u/s 44AB of the Income Tax Act.
In order to support our contention to above genuiness of the purchases we have filed the relevant details in D Ketan & Co forming part of the paper books. We rely on various judgements of courts and IT AT including eight judgments forming part of the paper book of the case laws. In most of the cases profit margin was retained as addition and removed balance unjusted addition.
1) We therefore, humbly prays to your honour to give relief by deleting unwarranted and unjustified addition @ 12.5% on 1,89,39,741/- of Rs. 23,67,467/- and/ or retain the profit element in purchase made from the alleged hawala dealers.
2) Rs. 33,911/- being interest on account of late payment of TDS, MVAT is of compensation nature and it is not a penalty. Hence it is allowable u/s 37 of the Income case laws:- i) CIT Vs. Western Indian State Motors, 174 ITR 116 Raj. ii) DCIT Vs. m/s Rungta Mines Ltd. D Bench Kolkata.
3) Interest paid on loan and loan confirmation of Rs. 6,11,326/-. Some advances/ deposits given to staff, suppliers etc on account of business necessity.
4) Interest paid to suppliers and interest received from customers Rs. 9,92,5 87/-(10,82,191/- - 89,604/-). This interest is paid/ received on by market custom and D Ketan & Co orally agreed by the parties. The AO did not fault with the purchases made by the assessee not doubt of substance of the parties who have supplied the iron & steel. Anyway, the AO interfered in the wisdom of assessee of doing the business. The Id. AO felt that assessee should do the business in a particular way but is not correct.
On the other hand, Ld. DR submitted that since the issue is remitting back to the tax authorities, it may also be verified.
Considered the rival submissions and material placed on record, we notice that the additions made by the AO with regard to bogus purchases on estimate basis @ 12.5% of the total bogus purchase. Further, we notice the Hon’ble Bombay High Court in the case of Pr. CIT vrs. M/s Mohommad Haji Adam & Co (ITA No. 1004 of 2016), wherein it was held that the addition can be made based on the difference of GP in the normal course and bogus purchases. Since assessee has not segregated his financials based on the GP earned by the it on normal purchases and bogus purchases. In order to verify, we are remitting this issue back to the file of AO with a direction to calculate the GP D Ketan & Co in line of the decision passed by Hon’ble Bombay High Court in the case of Pr. CIT vrs. M/s Mohommad Haji Adam & Co (supra) and accordingly make the assessment.
With regard to other additions, we observed that AO disallowed the expenditure of Rs. 33,911/- being interest on late payment of TDS and M-VAT as held in the catena of cases when the interest payment is made is in the nature of compensation, it is allowable u/s 37 of the Act.
With regard to disallowance of interest paid on loan, assessee has brought to our notice that certain advances were made to staff and suppliers for the purpose of business. We direct the AO to verify the submission of the assessee and its payment to staff and suppliers for the purpose of business and further AO is directed to reduce the disallowance of interest to that extent.
With regard to interest paid to suppliers, the interest is paid to the suppliers due to late payments or default made by the assessee in meeting the commitment. No assessee will make any payment without proper reason since assessee claims that it is market customs and practice of the assessee, then the AO is D Ketan & Co directed to verify the same and if this practice adopted by the assessee are regular customs in the business, assessee must have incurred similar interest expenditure over the years in particular iron and steel business. Accordingly, we direct the AO to verify the submission of the assessee and complete the assessment de novo after considering our above direction. Accordingly, grounds raised by the assessee are allowed for statistical purposes.