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Income Tax Appellate Tribunal, “SMC”, BENCH
Before: SHRI R.C.SHARMA
Assessee by Shri Parag Potfode (Adv-AR) Revenue by Shri Akhtar H Ansari (Sr.DR) Date of Hearing 07/11/2019 Date of Pronouncement 09/12/2019 आदेश / O R D E R PER: R.C. SHARMA, A.M. This appeal by the assessee is directed against the order dated 05/06/2018 of ld. CIT(A)-28, Mumbai for the A.Y. 2011-12 in the matter of order passed u/s 143(3) r.w.s. 147 of the Income Tax Act, 1961 (in short, the Act). Following grounds have been taken by the assessee:
“1. CIT(A) is failed to appreciate change of nature of Business of assessee from retailers to wholesale while estimating gross profit percentage and to delete the addition of Rs. 7,45,685/- done by ITO.
2. CIT(A) had passed the order on assumption of transaction and fails to understand the facts.
3. CIT(A) is failed to appreciate that the assessee’s taxable income was increase double than earlier years. It shows that the assessee had not suppressed the profit but being bulk order taken on low profit margin.
Vishwanath Kantiprasad Chaudhary Vs ITO 4. The assessee had already shown GP of 7% of Trading, Profit and Loss account, which includes purchase of Rs. 59,65,485/- on which ITO had calculated 12.5%. It means ITO had calculated profit @ 19.5% (i.e. 12.5% + 7%). It shows that the ITO had calculated in wrong way and CIT(A) fails to correct it.
5. We request your kindness to allow to add, alter or amend the grounds of appeal at the time of hearing.
Rival contentions have been heard and record perused. Facts in brief are that assessment was reopened on the information from the Sales Tax Department regarding assessee availing bogus bill. During the course of reassessment proceedings, the assessee was asked to furnish the specific details of bogus purchases. It is also conveyed that Sale Tax Department, Mumbai has detected Hawala Dealers indulging only in issuing bogus sales bills and following parties who has issued bogus sales bills to the tune of Rs. 59,65,485/- to the assessee.
Sr. No. Hawala name PAN Amount (In Rs.) 1 Chirag Steel Centre AABPV2786M 16,02,762/- 2. Champion Steel (India) AAAPV5546Q 20,55,975/- 3. Shubham Metal AACPJ2016P 22,72,306/- Corporation 4. Bhagyalaxmi Steel AHNPJ5891L 34,442/- Industries Total 59,65,485/- During the course of assessment proceedings the assessee's representative was asked to produce the purchase party and also to produce the bills, delivery challans, and payment details etc. for verification and to confirm the purchases. The assessee stated his inability to produce the party for confirmation of the purchases. Not Vishwanath Kantiprasad Chaudhary Vs ITO satisfied with the assessee’s contention, the A.O. made addition @ 12.5% by estimating the G.P. on such bogus purchases.
By the impugned order, the ld. CIT(A) confirmed the action of the A.O., against which, the assessee is in further appeal before the ITAT.
I have considered the rival contentions and carefully gone through the orders of the authorities below. With respect to issue regarding addition in respect of bogus purchases, the Hon’ble Jurisdictional High Court in the case of Pr.CIT Vs M/s Mohommad Haji Adam & Co. in of 2016 vide its order dated 11/02/2019 have held 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 Revenue is correct in contending that the entire purchase amount should be added by way of assesses 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 coming 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.P. 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
Vishwanath Kantiprasad Chaudhary Vs ITO reference to the facts. In fact in paragraph 8 of the same Judgment the Court held and observed as under- So far as the question regarding addition of Rs.3,70,78,125/- as gross profit on sales 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 durin Financial Year 1997- 98 is concerned, we are of the view that the assessee cannot 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 a result of which profit conies to 5.66%. Therefore, considering 5.66 % of Rs.3,70,78,125/which comes to Rs.2098.62 1.88 we think it fit to direct the revenue to add Rs.20,98.621.88 as gross profit and make necessary deductions accordingly. Accordingly, the said question is answered partially in favour of the assessee and partially in favour of the revenue."
The Coordinate Bench of the ITAT, Mumbai in the case of Shri Rameshkumar Daulatraj Vs ITO in order dated 07/05/2019 after following the above decision of Hon’ble Bombay High Court held as under:
“9. When these facts were confronted to the learned Sr. DR, he requested for application of reasonable profit rate and according to him the profit rate applied by the AO and confirmed by CIT(A) is quite reasonable in view of the decision of Hon’ble Gujarat High court in the case of Smith P.Seth (supra). We have considered the rival contentions and are of the view that Hon'ble Bombay High Court in the case of Mohammad Haji Adam & Co. and Ors. (supra) has considered this issue and respectfully following the same, we direct the AO to restrict the profit rate only to the extent of differential percentage as declared on the bogus purchases and as declared on the regular purchases, Hence, we direct the AO accordingly.”
It is clear from the above decisions that in case of bogus purchases where sales are accepted, the addition is required to be made
Vishwanath Kantiprasad Chaudhary Vs ITO only to the extent of difference between the GP declared by the assessee on normal purchases vis a vis bogus purchases. Respectfully following the order of the Hon’ble Jurisdictional High Court and the Coordinate Bench of the ITAT, Mumbai, I direct the A.O. to restrict the addition to the extent of lower GP declared by the assessee in respect of bogus purchases as compared to GP on normal purchases. The assessee is also directed to give full details to the A.O. with regard to GP earned on normal purchases and also GP earned on alleged bogus purchases. I direct accordingly.
In the result, appeal of the assessee is allowed in part.
Order pronounced in the open court on 09th December, 2019.