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Income Tax Appellate Tribunal, “SMC” BENCH,
Before: SHRI SHAMIM YAHYA, AM & SHRI AMARJIT SINGH, JM
O R D E R
PER AMARJIT SINGH, JM:
The assessee has filed the above mentioned appeals against the different order passed by the Commissioner of Income Tax (Appeals) -51, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Ys. 2010-11 & 2011-12.
The assessee has filed the present appeal against the order dated 04.05.2018 passed by the Commissioner of Income Tax (Appeals) -51, ITA Nos. 4954 & 4955/M/2018 A.Ys. 2010-11 & 2011-12 Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2010- 11.
The assessee has raised the following grounds: - “
1. That on facts of the case and in law the Ld. CIT(a) has erred in upholding the validity of the reassessment proceeding initiated u/s 147 by issue of notice u/s 148 on wrong facts and in unlawful manner.
2. That the Ld. CIT(A) has erred in not deleting the entire 12.5% adhoc disallowance made by the Ld. AO at Rs.6,57,397/- out of the alleged hawala purchases of Rs.52,59,176/-. In view of the same the appellant prays that the part disallowance retained by Ld. CIT(A) may be deleted. That both the appeal grounds are independent grounds & without prejudice to each other. That the appellant craves the leave to amend, alter, substitute and or to raise new or additional grounds of appeal at the time of hearing.”
4. The brief facts of the case are that the assessee filed his return of income on 30.09.2010 declaring total income to the tune of Rs.24,44,754/- for the A.Y.2010-11. The return was processed u/s 143(1) of the I.T. Act, 1961. The assessee was in the business of Ferrous & Non-Ferrous metals. The case of the assessee was reopened on the basis of the information received from the DGIT(Inv.), Mumbai in which it was conveyed that the assessee has taken the accommodation entries of bogus purchase in sum of Rs.52,59,176/- from the following two parties.
Name of the hawala parties Bill Amount Rolex Trading Company 1730872 Shubh Labh Metal & Alloys 3528304 Total 5259176 & 4955/M/2018 A.Ys. 2010-11 & 2011-12 5. After the reply of the assessee, the AO disallowed the bogus purchase @ 12.5% which comes to the tune of Rs.6,57,397/-. The total income of the assessee was assessed to the tune of Rs.31,02,150/-. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who partly allowed the claim of the assessee, therefore, the assessee has filed the present appeal before us.
We have heard the argument advanced by the Ld. Representative of the parties and perused the record. We noticed that the assessee failed to substantiate his claim, therefore, the AO raised the addition to the extent of 12.5% of the bogus purchase. In the instant case, sale is not doubted. It is settled law that when the sales are not doubted then the 100% disallowance for the bogus purchase cannot be done. This proposition was supported from the decision of Hon’ble Jurisdictional High Court in the case of Nikunj Eximp Enterprises (in writ petition no.2860 dated 18.06.2014). The facts of the present case indicates that the assessee has made purchase from the grey market. Making purchases through the grey market gives the assessee savings on account of non-payment of tax and others at the expenses of the exchequer. As regards the quantification of the profit element embedded in making of such bogus/unsubstantiated purchases by the assessee, we find that the proposition as held by Hon’ble Jurisdictional High Court in the case of PCIT Vs. M. Haji Adam & Co. (ITA. No. 1004 of 2016 dated 11.02.2019) is liable to be applied. The relevant para no. 8 is hereby reproduced as under: - “8. In the present case, as noted above, the assessee was a trader of fabrics. The A.O. found three entities who were indulging in bogus billing activities. A.O. found that the purchases made by the assessee from these entities were bogus. This being a finding of fact, we have proceeded on such basis. Despite this, the question arises whether the & 4955/M/2018 A.Ys. 2010-11 & 2011-12 Revenue is correct in contending that the entire purchase amount should be added by way of assessee's additional income or the assessee is correct in contending that such logic cannot be applied. The finding of the CIT(A) and the Tribunal would suggest that the department had not disputed the assessee's sales. There was no discrepancy between the purchases shown by the assessee and the sales declared. That being the position, the Tribunal was correct in coining to the conclusion that the purchases cannot be rejected without disturbing the sales in case of a trader. The Tribunal, therefore, correctly restricted the additions limited to the extent of bringing the G.I. rate on purchases at the same rate of other genuine purchases. The decision of the Gujarat High Court in the case of N.K. Industries Ltd. (supra cannot be applied without reference to the facts. In fact in paragraph 8 of the same judgment the Court held and observed as under “So far the question regarding addition of Rs.3,70,78,125/- as gross profit on sale of Rs.37.08 crores made by the Assessing Officer despite the fact that the said sales had admittedly been recorded in the regular books during F.Y. I997-98 is concerned; we are of the view that the assessee be punished since sale price is accepted by the revenue. Therefore, even if 6 % gross profit is taken into account, the corresponding cost price is required to be deducted and tax cannot be levied on the same price. We have to reduce the selling price accordingly as result of which profit comes to 5.66%. Therefore, considering 5.66% of Rs.3,70,78,125% which comes to Rs.20,98,621.88 we think if fit to direct the revenue to add Rs.20,98,621.88 as gross profit and made necessary deductions accordingly. Accordingly, the said question is answered partially in favour of the assessee and partially in favour of the revenue.” 6. We respectfully following the aforesaid judgment of the Hon’ble Jurisdictional High Court, set aside the matter to the file of the AO with the direction to restrict the addition as regards the bogus purchases by bringing the gross profit rate on such bogus purchases at the same rate as that of the other genuine purchases. Needless to say that an opportunity of being heard is required to be given to the assessee in accordance with law.