KUNAL STEEL,MUMBAI vs. ACIT -17(2), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “SMC”, MUMBAI Before Shri Shamim Yahya (AM) & Shri Pawan Singh (JM) ITA No. 5511/Mum/2018(Assessment year: 2009-10)

M/s Kunal Steel, Vs ACIT 17(2), Mumbai 113, Kansara Street, Darukhana, 3rd Lane, Mumbai- 9 PAN : AAHFK2164J APPELLANT RESPONDEDNT

Appellant by None Respondent by Ms. Samatha Mullamudhi ( Sr.DR) Date of hearing 16-10-2019 Date of pronouncement 23-10-2019

O R D E R Per Pawan Singh, JM : 1. This appeal by assessee is directed against the order of ld. CIT(A)-57,

Mumbai dated01.06.2018 for Assessment Year 2009-10. The assessee

has raised the following grounds of appeal:

"1. There is delay of 2 days in filing the appeal. Delay occurred due to Saturday and Sunday. The 2 days delay shall be condoned. 2. Under the facts and circumstances of the case and in law the Ld CIT (Appeal - 57) erred in giving relief of 4.5% and calculated the income @ 8% of alleged Hawala purchases. The addition shall be deleted. 3. Under the facts and circumstances of the case and in law the Ld CIT (Appeal - 57) erred and allowed relief on Gross purchases a/c i.e. including taxes; how eve the Assessee have debited Net purchases to the purchase A/c. The direction shall be given to ACIT to give relief on net purchases. 4. Under the facts and circumstances of the case and in law the Ld CIT (Appeal - 57) erred in treating genuine purchases as unexplained expenditure. The unexplained expenditure be deleted.” 2. Brief facts of the case are that the assessee, a partnership firm dealing

in iron & steel items, filed its return of income for AY 2009-10 on 15-

09-2010 declaring total income at Rs.14,26,694/-. The return was

ITA No. 5511/M/2018 Kunal Steel initially processed and accepted under section 143(1). Subsequently,

on the basis of information received from the DGIT(Inv) that the

assessee was one of the parties involved in receiving accommodation

entries from bogus / hawala dealers, the Assessing Officer made a

belief that the income of the assessee escaped assessment, therefore,

re-opened the assessment under section 147. Notice under section 148

dated 28.03.2016 was issued and served upon the assessee. The

assessee, vide letter dated 25-04-2016 stated to consider original

return filed as return filed in response to notice u/s 148. The

Assessing Officer after serving notice under section 143(2) / 142(1)

dated 26.08.2016 proceeded for re-assessment. During the assessment,

it was found that assessee had made purchases of Rs.2,19,23,582/-

from Hanuman Steels which was the suspicious purchase. The AR of

the assessee was accordingly asked to produce the evidence to

establish that goods have actually been delivered / supplied. The

assessee was also asked to furnish its explanation on the purchases

purported to have made from the aforesaid party and the details of

brokers / agents through whom purchases were claimed to have been

made by the assessee including name, address, contact number, etc to

prove the genuineness of the transaction. The assessee was also show

caused to explained why expenditure claimed in respect of purchases

shown to have made from the aforesaid dealer should not be 2

ITA No. 5511/M/2018 Kunal Steel disallowed. The assessee explained that the payments were made by

account payee cheque. The assessing officer, however, observed that

payment made by account payee cheque was not a fool proof method

of substantiating the assessee’s claim and was not sufficient to

establish the genuineness of the purchases. For this proposition the

assessing officer placed reliance on the judgement of Hon’ble

Supreme Court in the case of Kachwal Gems vs Jt.CIT (2007) 288

ITR 10 (SC). The assessing officer after considering the material

before him concluded d that the assessee has suppressed profit to the

tune of Rs.27,40,448/- being 12.5% of non genuine purchases of

Rs.2,19,23,592/- and the same was accordingly added to the total

income. On appeal, the Ld.CIT(A), on finding that the GP adopted by

the assessing officer on the alleged bogus purchases excessive,

reduced the addition to the extent of 8% of alleged bogus purchases.

Further aggrieved, the assessee filed this appeal.

hearing sent through RPAD was returned by the postal authority with

the remark, “not found”. Therefore, we left no option except to hear

the submissions of the learned departmental representative ( ld. DR)

for the revenue, who supported the order of the assessing officer and

submitted that the ld. CIT(A) has already granted sufficient relief to

the assessee in directing the assessing officer to restrict the addition to 3

ITA No. 5511/M/2018 Kunal Steel the extent of 8% of alleged bogus purchases. The assessee is one of

the beneficiaries of the purchases made from the hawala dealers,

which were indulged in providing the bogus bills without delivery of

the goods or material. 4. We have considered the submissions of the Ld. DR and perused the

material available on record. During the assessment the assessing

officer made disallowances of purchases @ 12.5% of the aggregate of

the alleged purchased shown from the impugned/ hawala dealers by

taking view that only estimated profit on such purchases is liable to be

disallowed. On appeal the Ld.CIT (A) found that since purchases

were and corresponding sales were also made, the assessing officer

has not doubted the sales. The sales are not possible without the

purchases. The assessee has shown gross profit (GP) @ 4.28%, which

is reasonable in the trade of the assessee. The ld CIT(A) after

considering the GP declared by the assessee directed the assessing

officer to reduce the GP already declared by the assessee and thereby

directed the assessing officer to estimate the GP @ 8% and granted

relief to the assessee. 5. We have examined the facts of the present case independently. The

assessing officer disallowed 12.5% of the impugned purchases. The ld

CIT(T), while granting relief to the assessee has estimated the overall

GP of assessee @ 8%. Therefore, is no consideration of the facts on 4

ITA No. 5511/M/2018 Kunal Steel record about the total turnover of the assessee. The ld CIT(A) while

estimating the GP to 8% has not brought the facts, if the assessee has

shown other purchases, which were accepted as genuine. 6. We have noted that on similar set of fact, the Hon’ble Bombay High

Court in PCIT vs. M Haji Adam & Co. (ITA No. 1004 of 2016

dated 11.02.2019) held that addition in respect of bogus purchase be

limited to the extent of bringing the GP rate on bogus purchase at

the same rate as other genuine purchases. We have further noted

that the assessee has shown GP of 4.28. Therefore, considering the

fact of the present case and the nature of business activities of the

assessee and by following the decision of Hon’ble Bombay High

Court, we direct the Assessing Officer to restrict the addition with

regard to bogus purchases by brining the GP rate on such purchases

at the same rate as that of other genuine purchases. Needles to say

that before making addition, the Assessing Officer shall grant

opportunity to the assessee before passing the order in accordance

with law. In the result, appeal filed by the assessee is partly allowed.

Order pronounced in the open court on 23-10-2019.

Sd/- Sd/- (Shamim Yahya) (Pawan Singh) ACCOUNTANT MEMBER JUDICIALMEMBER

Mumbai, Dt : 23 October, 2019 Pk/- 5

ITA No. 5511/M/2018 Kunal Steel Copy to : 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR /True copy/ By order

Asstt. Registrar, ITAT, Mumbai