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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SRI MAHAVIR SINGH
आयकर अपीलीय अधिकरण “SMC” न्यायपीठ म ुंबई में। IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, MUMBAI श्री महावीर स िंह, न्याययक दस्य BEFORE SRI MAHAVIR SINGH, JUDICIAL MEMBER आयकर अपील सुं./ (यिर्ाारण वर्ा / Assessment Year 2011-12) The Income Tax Officer, Ghevarchand Sagarmal Sanghvi Ward 19(1)(3), Santosh Steel Corporation, बनाम/ Room No.220, 2nd Floor, 4 Varsha, 2nd Khetwadi Lane, Matru Mandir, Tardeo Road, Near Alankar Cineman, Vs. Mumbai-400 007 Mumbai-400004 (अपीलार्थी / Appellant) (प्रत्यर्थी/ Respondent) स्र्थायी लेखा सुं./PAN No. ABNPS8984P अपीलार्थी की ओर े / Appellant by : Shri Akhtar H. Ansari, DR प्रत्यर्थी की ओर े / Respondent by : Shri Rajesh Chamaria, AR ुिवाई की तारीख / Date of hearing: 17.12.2019 घोर्णा की तारीख / Date of pronouncement : 17.12.2019 आदेश / O R D E R महावीर ससुंह, न्याययक सदस्य/ PER MAHAVIR SINGH, JM:
This appeal of the Revenue is arising out of the order of Commissioner of Income Tax (Appeals)]-52, Mumbai [in short CIT(A)], in Appeal No. CIT(A)-52/IT-351/19(1)(3)/17-18 order dated 17.09.2018. The Assessment was framed by the Income Tax Officer, Ward-19(1)(3), Mumbai (in short ITO / AO) for the 2 | P a g e Ghevarchand Sagarmal Sanghvi A.Y. 2011-12 vide order dated 25.10.2016, under section 144 read with section 147 of the Income-tax Act, 1961 (hereinafter ‘the Act’).
The only issue in this appeal of Revenue is against the order of CIT(A) restricting the addition made by AO by applying the profit rate at 12.5% of the bogus purchase and further allowing reduction on account of already declared profit from the GP restricted at 12.5%. For this Revenue has raised following grounds: - “1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in restricting the addition @12.5% as against @15% made by AO on bogus purchases despite the fact the addition was made on basis of credible information received from DGIT(Inv.) based on information supplied from sales tax authorities?
2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in directing the AO to allow set off of the Gross profit of @9.71% shown by the assessee from the addition of net profit @12.5% on account of bogus purchases confirmed the Ld. CIT(A)?.”
3 | P a g e Ghevarchand Sagarmal Sanghvi 3. Briefly stated facts are that the assessee engaged in the business of ferrous and non-ferrous metal. 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 ₹1,65,94,688/- as admitted by these hawala dealers in their deposition before the authorities. The same reads as under: - “Sl Name of party Amount No.
Manibhadra Metal Industries 7,17,024 2. Rohan Steel Impex 8,42,347 3. Shivam Metal Industries 9,88,503 4. Agam Enterprises 18,81,197 5. Good Luck Metal Impex 1,21,65,617 Total 1,65,94,688 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 15% of Rs. 24,89,203/- 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 following the decisions of Hon’ble Gujarat High Court in the case 4 | P a g e Ghevarchand Sagarmal Sanghvi of CIT vs. Smith P. Seth (2013) 356 ITR 451 (Guj) by observing in para 5.5 as under: - “5.5 From the aforesaid cited decision of Gujarat High Court in the case of Simit P Sheth (supra), it can be observed that the appropriate GP percentage for computing the unaccounted profits from the purchases from the alleged hawala/ bogus suppliers should factor the savings of taxes etc. due to the unaccounted sales and the GP already shown in the regular books. It is observed that the ratio of the decision of the Gujarat High Court in the case of Smit P Sheth (supra) cannot be squarely applied to the facts of the case of our assessee since the sales tax rate prevalent in Gujarat was 10% as against only 4% applicable in Maharashtra for the relevant period. However, the facts of the case of the assessee are somewhat similar to that of Ratnagiri Steels (supra). In the case of Ratnagiri Steels (Supra), the Hon’ble ITAT after considering the healthy GP shown of 5.45%, directed the AO to allow set off of the book GP against the said rate of 12.5% while computing the additional profits from the purchases 5 | P a g e Ghevarchand Sagarmal Sanghvi from the alleged hawala/ bogus suppliers. In the instant case, it is observed that the assessee has shown a healthy GP of 9.71%. Therefore, as was done by the Hon’ble ITAT, Mumbai in the case of Ratnagiri Steel (supra), it will be appropriate if rate of 12.5% is applied for computing the unaccounted profits related to purchases from the hawala/ bogus suppliers and against this set off of the GP shown in the regular books in respect of the purchases from the hawala/ bogus suppliers is allowed. Accordingly, the AO is directed to compute the additional profits in respect of the purchases from the alleged hawala/ bogus suppliers by adopting rate of 12.5%. However, the AO will allow a set off of the GP already shown by the assessee in the regular books in respect of the purchases from the said alleged hawala/ bogus suppliers accordingly. This ground of the appeal is partly allowed.”