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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI MAHAVIR SINGH & SHRI G. MANJUNATHA
PER MAHAVIR SINGH, JUDICIAL MEMBER
This appeal is filed by the assessee against the order of CIT(A)-30, Mumbai dated 06.06.2018 for assessment year 2010-11 which in turn has arisen from order of Assessing Officer passed under Section 143(3) r.w.s. 147 of the Income Tax Act, 1961 (in short ‘the Act’) dated 27.11.2015.
The only issue in this appeal of assessee is against the order of CIT(A) estimating the profit rate @ 10% as against the estimation by the Assessing Officer @ 12.5% of the alleged bogus purchases. For this, the assessee has raised the following grounds on merit:
“1. On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeal) erred in (a) arriving at the conclusion that purchases made of Rs.4664806/- from parties mentioned in assessment order are not genuine and not made from them but from other sources. (b) estimating rate of profit at 10% on alleged bogus purchases over and above gross profit declared of 11.25% by the appellant on such purchases. (c) confirming addition of Rs.566481/- made by the Assessing Officer to the total income of the appellant.”
It is noticed that there is issue of reopening also, but the learned counsel for the assessee stated that once a reasonable estimation is made, he has instructions from the assessee not to press ground nos. 2 and 3. Hence, we have heard the issue on merits and proceed to decide the issue on merits.
The brief facts are that the assessee-firm is engaged in the business of trading in ferrous and non-ferrous metals. The Assessing Officer, during the course of assessment proceedings, noticed that the Department has received information from the Sales Tax Department regarding issue of hawala bills and accommodation entries by several parties in Mumbai and assessee is also a beneficiary of such hawala bills and accommodation entries. According to the Assessing Officer, assessee has received bogus bills/accommodation entries from 5 parties to the tune of Rs.56,64,806/-, details of which are as under: -
Hawala Parties Amount in Rs.
3 M/s. Delux Steel Impex Ashtavinayak Sales Agency 605652 Suraj Steel India 1238700 Anshu Mercantile Pvt. Ltd. 1372915 Mazda Steel Trade Pvt. Ltd. 1511968 Takshil Trading Pvt. Ltd. 935571 Total 56,64,806/- The Assessing Officer noted that assessee could not file vital documents such as delivery challans, transport receipts, octroi receipts for payment of octroi duty, receipt of weight bridge for weighing goods, excise gatepass, goods inward register maintained at godown, warehouses, storage houses, etc. According to him, the DGIT (Inv.) Wing, Mumbai has also carried out inquiries after receipt of information from the Sales Tax Department of Maharashtra regarding issue of hawala bills and accommodation entries and noted that all these alleged purchases by assessee are bogus. Accordingly, he estimated the profit rate on these alleged bogus purchases at 12.5% and made addition of Rs.7,08,101/-. Aggrieved, assessee preferred appeal before the CIT(A). The CIT(A) restricted the profit rate to 10% by observing in para 8.10 and 8.11 as under :-
“8.10 Hon'ble Gujarat High Court in the case of CIT vs Simit Sheth 356 ITR 451 (Guj) found that some of the alleged suppliers of steel to the assessee had not supplied any goods but had only provided sale bills and hence, purchases from the said parties were held to be bogus. The AO in that case added the entire amount of purchase to gross profit of the assessee. Ld. CIT(A) having found that the assessee had indeed purchased though not from named parties but other parties from grey market, partially sustained the addition as probable profit of the assessee. The 4 M/s. Delux Steel Impex Tribunal however, sustained the addition to the extent of 12.5%. Taking into account the above facts, the Hon'ble Gujarat High Court held that since the purchases were not bogus, but were made from parties other than those mentioned in books of accounts, only the profit element embedded in such purchases could be added to the assessee’s income and as such no question of law arose in such estimation.
8.11 On perusal of the facts and circumstances of the present case, it is found that the same are similar to the above case. In view of the same and after considering the fact that appellant has already disclosed G.P of 11.25% for the year under consideration, the A.O is directed to restrict the addition @ 10% of the alleged purchases amounting to Rs.56,64,806/- made from 5 parties. Accordingly, Ground No. 1 and 2 are treated as ‘Partly Allowed’.”
Aggrieved, now Revenue is in appeal before the Tribunal.
We have heard the rival contentions and gone through the facts and circumstances of the case. We noted that the Assessing Officer has admitted that these purchases are no doubt accommodation entries, but ultimately assessee had made purchases from the grey market because sales are not doubted. Due to this discrepancy, the Assessing Officer estimated the profit rate @ 12.5%, which was restricted by the CIT(A) to 10%. We noted that the nature of business of assessee is of trading in ferrous and non-ferrous metals, which attracts VAT @ 5%. At least, this could have been saved by the assessee because the profit earned by the assessee is already embedded in the sales, which is not doubted by the lower authorities. Hence, we direct the Assessing
5 M/s. Delux Steel Impex Officer to restrict the profit rate @ 5% of the alleged bogus purchases and estimate the income accordingly.
In the result, appeal of the assessee is partly allowed.
Order pronounced in the open court on 14th October, 2019.