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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: Shri Shamim Yahya (AM) & Shri Pawan Singh (JM)
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “SMC”, MUMBAI Before Shri Shamim Yahya (AM) & Shri Pawan Singh (JM) ITA No. 6096/Mum/2018 (Assessment year : 2009-10)
Sharad Vrajlal Doshi vs ITO 17(3)(3), Mumbai 51/57, Donald Street Damar Gally, Masjid Bunder Mumbai-400 009 PAN : AACPD0897Q APPELLANT RESPONDEDNT
Appellant by Shri Ashok Mehta Respondent by Ms. Samastha Mullamadi Date of hearing 14-10-2019 Date of pronouncement 14-10-2019
O R D E R Per Pawan Singh, JM : 1. This appeal filed by the assessee is directed against the order of ld.
CIT(A)-28, Mumbai dated 17.08.2018 for Assessment Year 2009-
The assessee has raised the following grounds of appeal: “1. The Learned Assessing Officer and CIT(A) -34 erred in assessing the total income of Rs. 15,78,5607- instead of the returned income of Rs. 3,06,294/-. 2. The Learned Assessing Officer erred in not providing all the evidence received from the investigation working of Income Tax Department and the VAT Department and the CIT(A)-34 erred in rejecting the grounds without any reasoning. 3. The Learned Assessing Officer and CIT(A)-34 erred in concluding that the Sates Tax Department has certified that the above said parties are "Non- Genuine" without adequate evidence. The AO failed to understand that the Sales Tax Department has only claim that these dealers are "Suspicious" dealers and have not even completed assessments in these cases.
2 ITA 6096/Mum/2018 Sharad Vrajlal Doshi 4. The Learned CIT(A) -34 erred in concluding that the parties are assessee's witness without appreciating that it was the claim of the department that the purchases were bogus and therefore it was the witness of the department and the department is to produce the party. 5. The Learned Assessing Officer and ClT(A)-34 failed to make addition on the issue for which assessment is reopened and made addition on gross profit. Thus the entire assessment needs to be set aside following Jet Airways Ltd Bombay High Court 331ITR 236. 6. The Learned Assessing Officer and CIT(A)-34 erred in treating the purchases as non-genuine without appreciating the fact that the assessee had received delivery of goods and sold the same to third parties and that there cannot be any sales without purchases. 7. The Learned Assessing Officer and CIT(A) -34 erred in rejecting Books of Accounts u/s 145(3) based on surmises and conjectures without indicating any error in the Books of Accounts 8. Without prejudice to the above ground that the purchases are genuine, we plead that Learned AO and CIT(A) -34 erred in making a GP Addition of 12.5% 9. The Learned Assessing Officer and CIT(A) -34 erred in making an addition of 12.5% without deducting the GP already shown by the assessee on these goods.”
Brief facts of the case are that the assessee is Proprietor of M/s
Sharad Steel Corporation and is engaged in trading in Iron and Steel
filed return of income for AY 2009-10 on 25-09-2009 declaring
total income at Rs. 3,06,294/-. The return of income was processed
under section 143(1). The assessment was re-opened under section
147 on the basis of information received from Sale Tax Department,
Government of Maharashtra that certain hawala operators are
3 ITA 6096/Mum/2018 Sharad Vrajlal Doshi indulging in providing accommodation bills without actual delivery
of goods. The Sale Tax Department, Government of Maharashtra
referred the list of such hawala dealers and the beneficiary to the
DGIT (Investigation), Mumbai. The name of assessee appeared in
the list of beneficiary. The assessee allegedly made the purchases
of Rs. 1,01,78,109/- from such hawala dealers. On the basis of
information, 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
11.03.2014 was issued and served upon the assessee. Reasons
recorded were supplied to the assessee. The Assessing Officer after
serving notice under section 143(2) dated 31.07.2014 proceeded for
re-assessment. For the year under scrutiny the assessee has shown
sales turn over of Rs. 5,17,95,621/- and gross profit of Rs.
1,08,627/-. During the assessment, the Assessing Officer noted that
the assessee has shown purchases from the following parties, which
was declared as hawala dealers by the Sale Tax Department,
Government of Maharashtra.
Name of the parties Bill amount (Rs.) 1 Sidhivinayak Trading Company 35,93,401/-
4 ITA 6096/Mum/2018 Sharad Vrajlal Doshi 2 J.B. Interlink 30,021 3 Rekha Trading Co 41,93,620/- 4 Amar Enterprises 1,38,877/- 5 Sun Enterprises 1,78,724/- 6 M.R. Corporation 10,99,249/- 7 Navdeep Trading Corporation 1,31,196/- 8 Grifton India Ridhi Enterprises 3,56,985/- 9 D.K. Enterprises 4,04,227/- 10 P.K. Trading 32,121/- 11 Pawan Enterprises 19,688/- Total 1,01,78,109/-
The assessee was asked to substantiate the purchases and issued
show-cause notice as to why the aforesaid transaction should not be
treated as non-genuine. The assessee was also asked to produce the
party for verification. The assessee filed its explanation and
furnished the copy of ledger account and proof of payment through
cheques. The Assessing Officer not accepted the explanation
furnished by assessee and noted that the assessee has not produced
Lorry Receipt, Transportation Details etc. The Assessing Officer
after considering the material available before him and the
submission made by assessee concluded that certain purchase
shown by the assessee remained unverifiable and there is possibility
of revenue leakage, the gross profit (GP) shown by assessee is very
5 ITA 6096/Mum/2018 Sharad Vrajlal Doshi low. The Assessing Officer concluded that the assessee may have
purchased goods from other suppliers without bills, which is
commonly known as grey market and the assessee is beneficiary of
margin of grey market. The Assessing Officer on his above said
observation disallowed 12.5% of the aggregate of total of non-
genuine/alleged hawala purchases in assessment order dated
29.01.2015 passed under section 143(3) r.w.s 147. 4. On appeal before the ld. CIT(A), the action of Assessing Officer
was sustained. Further, aggrieved by the order of ld. CIT(A), the
assessee has filed the present appeal before us. 5. We have heard the submission of ld. Authorized Representative
(AR) of the assessee and ld. Departmental Representative (DR) for
the revenue and perused the material available on record. The ld.
AR of the assessee submits that the assessee furnished complete
details of purchases and the sales made against the alleged bogus
purchases. The Assessing Officer has rejected the books of account
without mentioning specific reasons. The Assessing Officer made
the disallowance of 12.5% of the alleged bogus purchases. The ld.
AR of the assessee further submits that the addition sustained on
account of alleged bogus purchases is on higher side. The ld. AR of
6 ITA 6096/Mum/2018 Sharad Vrajlal Doshi the assessee further submits that after addition sustained by ld.
CIT(A), the GP of assessee would rise to unreasonably high. 6. The ld. AR of the assessee further submits that the Hon’ble Bombay
High Court in a recent decision on similar set of fact in PCIT vs. M
Haji Adam & Co. in ITA No. 1004 of 2016 dated 11.02.2019 held
that addition in respect of bogus purchases is to be limited to the
extent of bringing the GP rate on such purchase at the same rate as
on other genuine purchases. The ld. AR of the assessee submits that
the disallowance of alleged bogus purchase may be restricted in
accordance with the decision of Hon’ble jurisdictional High Court
in PCIT vs. M Haji Adam & Co. (supra). 7. On the other hand, the ld. Departmental Representative (DR) for
the revenue supported the order of lower authorities. The ld. DR
further submits that Investigation Wing of Income-tax Department
has made full-fledged investigation in respect of hawala traders.
The hawala traders were/are engaged in providing bogus bill
without actual delivery of goods. The assessee has shown bogus
purchases only to inflate the profit. The ld. DR for the revenue
submits that the Assessing Officer has given sufficient relief. The
7 ITA 6096/Mum/2018 Sharad Vrajlal Doshi Assessing Officer has reasonably estimated the disallowances. The
assessee is not entitled for any further relief. 8. We have considered the submissions of both the representatives and
perused the record. Though, the assessee has raised as many as ten
grounds of appeal, however as per our considered view, a short
issue for our adjudication is whether the disallowance of alleged
bogus purchase @ 12.5% is reasonable or not. The ld. AR of the
assessee has vehemently relied upon the decision of Hon’ble
jurisdictional High Court in M Haji Adam & Co.(supra). We have
noted that on similar set of fact, the Hon’ble Bombay High Court in
PCIT vs. M Haji Adam & Co. (supra) 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.
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
8 ITA 6096/Mum/2018 Sharad Vrajlal Doshi Assessing Officer shall grant opportunity to the assessee before passing the order in accordance with law. 9. In the result, appeal of the assessee is partly allowed. Order pronounced in the open court on 14-10-2019. Sd/- Sd/- (Shamim Yahya) (Pawan Singh) ACCOUNTANT MEMBER JUDICIALMEMBER Mumbai, Dt : 14th October, 2019 Pk/- Copy to : 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR /True copy/ By order Asstt. Registrar, ITAT, Mumbai