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PER PAWAN SINGH, JUDICIAL MEMBER; 1. These three appeals by assessee are directed against the separate orders of ld. CIT(A)-29, Mumbai dated 19.07.2018 for Assessment Year 2009- 10, 2010-11 & 2011-12. In all the appeals, the assessee has raised identical grounds of appeal except variation of figure. Facts for all the Assessment Years are identical except variation of alleged bogus purchases and disallowances thereof @ 12.5% of such purchases.
Therefore, all the appeals were clubbed, heard together and are decided by common order. For appreciation of facts in appeal for Assessment to 5374 Mum 2018-M/s P. Kantilal & Co.
Year 2009-10 was treated as lead case. In appeal for Assessment Year 2009-10, the assessee has raised the following grounds of appeal:
Ground No.1 The learned Assessing Officer erred in treating the appellant as a beneficiary of accommodation bills issued by two suppliers viz. M/s. Nutan Metals and M/s. Pradeep Metals and consequently treating the purchase made by the appellant from the said two parties as non-genuine. Ground No.2 The learned Assessing Officer erred in making an addition of Rs. 13,69,607/- being 12.5% of purchase of Rs. 1,09,56,858/- made from M/s. Nutan Metals and M/s. Pradeep Metals.
Brief facts of the case are that the assessee is a proprietor of M/s P.
Kantilal & Co., engaged in the business of trading in Brass Aluminium, filed its return of income for Assessment Year 2009-10 declaring total income of Rs. 72,370/-. 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 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. 1,09,56,858/- from such hawala dealers. On the basis of information, the Assessing Officer made a belief that the income of the assessee escaped assessment, therefore, 2 to 5374 Mum 2018-M/s P. Kantilal & Co. re-opened the assessment under section 147. Notice under section 148 dated 03.03.2014 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 15.07.2014 proceeded for re- assessment. 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 Pradeep Metals Syndicate 25,76,675/- 2 Nutan Metals 83, 80,183/- Total 1,09,56,858/-
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 assessees filed its explanation and furnish 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 rejected the books of account. The Assessing Officer after considering the material available before him and the submission made by assessee concluded that the assessee was in possession of goods and has shown the sale against the purchases. The sale is not possible without purchases. The Assessing Officer concluded 3 to 5374 Mum 2018-M/s P. Kantilal & Co. that the assessee may have purchases goods from other supplier without bills, which is commonly known as grey market and the assessee is beneficiary of margin of grey market. The Assessing Officer on his abovesaid observation disallowed 12.5% of the aggregate of total of non-genuine/alleged hawala purchases in assessment order dated 17.03.2015 passed under section 143(3) r.w.s 147.
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 assessee has already shown Gross Profit (GP) at 1.17%. The addition sustained on account of alleged bogus purchases is on higher side. The ld. AR of the assessee further submits that after addition sustained by ld. CIT(A), the GP of assessee would rise to 5.98%, which is extremely high. 4 ITA No. 5372 to 5374 Mum 2018-M/s P. Kantilal & Co.
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 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).
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 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. 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 5 to 5374 Mum 2018-M/s P. Kantilal & Co.
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. We have further noted that the assessee has shown GP of 1.17%. It was argued that the GP percentage after addition would be 6.05%, which is on higher side.
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 order that before making addition, the 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.
ITA No. 5373/Mum/2018 A.Y. 2010-11 A.Y. 2011-12 10. As we have noted above, the assessee has raised the identical grounds of appeal as raised in appeal for Assessment Year 2009-10. The disallowances made by Assessing Officer on account of alleged bogus purchases are also similar except the fact that parties/alleged hawala
6. ITA No. 5372 to 5374 Mum 2018-M/s P. Kantilal & Co. dealers are different. Considering our order for Assessment Year 2009- 10 on similar ground, the appeals for the year under consideration are also allowed with similar direction.
In the result, appeal of the assessee for all the AY’s are partly allowed.
Order pronounced in the open court on 09/10/2019.