SALMAN RAZZAK CHHAPRA,MUMBAI vs. ITO 25(1)(1), MUMBAI

The first issue these cross appeals of Revenue and assessee in & 7514/Mum/2018 is against the order of CIT(A) restricting the addition of profit rate at the rate of 12.5 % as against made by the AO at the rate 25% of the bogus purchase.

Briefly stated facts are that the assessee engaged in the business of trading in Timber product. The AO received information from DGIT (Investigation), who in turn received information from Sales Tax Department, Mumbai that the assessee has made purchases from hawala parties, as listed in hawala dealers by the Maharashtra Sales Tax Department who are providing bogus bills of purchase amounting to ₹1,04,49,880/- as admitted by these hawala dealers in their deposition before the authorities. The same reads as under: - 3 | P a g e ITA Nos. 6942,6943,7514 & 7515/Mum/2018 Salman R. Chhapra “Sl Name of party Amount No.

M/s Universal Suppliers 15,87,105 2. M/s Noble Associates 17,87,153 3. Mark Enterprises 5,86,203 4. M/s royal Timber Trading Co. 21,16,800 5. M/s Woodland Enterprises 31,22,822 Total 1,04,49,880 4. During the course of assessment proceedings and during appellate proceedings, the assessee submitted all the documentary evidences such as inward register, stock register, payment received against such sales, receipt of material purchases, account payee cheque. According to the AO, the assessee failed to establish the genuineness of the purchase and accordingly, he made addition of unproved purchases at 25% to ₹1,04,49,880/- to the return income of the assessee. Aggrieved, assessee preferred the appeal before CIT(A), who restricted the disallowance at 12.5% of the bogus purchases by observing in para as under: - “5.11 Considering the totality of the facts before me, as well as the judicial opinion available, I am inclined to agree with the appellant’s stand that the addition is bogus purchases. The total purchased debited to the trading account from these parties are ₹1,04,49,880/-. I am of the view that estimation of profit at 12.5% would meet the ends of justice. Therefore, I direct the AO to estimate profit of 12.5% on the total purchases in question which works out to ₹13,06,235/- 4 | P a g e ITA Nos. 6942,6943,7514 & 7515/Mum/2018 Salman R. Chhapra (12.5% of Rs.1,04,49,880/-). The appellant therefore gets relief of ₹13,06,235/- (₹26,12,470/- minus ₹13,06,235/-). The grounds raised are partly allowed.”

I have considered the issue and gone through the facts and circumstances of the case. I noted the facts from the assessment order and also from CIT(A)’s that the assessee submitted the ledger accounts of the above parties and bank statements extracts evidencing the payments through bank cheque. I noted that facts of this case are similar to the case of Hon'ble High Court of Gujarat in the case of Simit P Seth V CIT (2013) 356 ITR 451(Guj) wherein it had on occasion to deliver its judgment by confirming the decision of the ITAT which has estimated the disallowance at 12.5% of the disputed bogus purchases to meet the end of Justice. Even now before me also revenue could not dislodge the factual aspects noted by CIT(A). I find that the CIT(A) has rightly applied the profit rate at the rate of 12.5% and I confirm the same. This issue of both the appeals is dismissed.

The next common issue in these cross appeals of Revenue and assessee in & 6943/Mum/2018 is as regards to the order of CIT(A) restricting the penalty levied under section 271(1)(c) of the Act on the quantum addition of profit 5 | P a g e & 7515/Mum/2018 Salman R. Chhapra rate of 12.5% as against penalty levied by AO on the quantum addition of profit rate of 25%.

I have heard the rival contentions and gone through the facts and circumstances of the case. I noticed that on identical circumstances the Tribunal is consistently deleting the penalty levied by AO under section 271(1)(c) of the Act on estimation of profit rate in respect to bogus purchases. I noted that this issue is squarely covered in vide order dated 16.05.2019, wherein it is held as under: - “3. Upon careful consideration, upon perusal of assessee’s submissions during appellate proceedings, we find that the assessee’s plea revolve around the fact that the purchases were made under bona-fide belief and in good faith that the suppliers were genuine. The suppliers used to visit assessee’s shop to supply the material as per routine practice. The TIN of the suppliers was found active at the time of purchase of goods. We find the explanation to be plausible one and the overall conduct of the assessee do not inspire us to confirm the penalty. By deleting the same, we allow ground nos. 1 & 2. ……………..”