SHRI KAMLESHKUMAR G SANGHVI,MUMBAI vs. INCOME TAX OFFICER WARD-19(2)(2), MUMBAI

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ITA 5127/MUM/2018Status: DisposedITAT Mumbai19 September 2019AY 2009-105 pages
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What did the Tribunal hold?

The Tribunal agreed that a profit rate of 12.5% was on the higher side, considering the business nature and VAT paid on bogus purchases. The AO was directed to recompute income by applying a profit rate of 5%.

What were the facts?

The assessee, engaged in trading ferrous and non-ferrous metals, made purchases from parties identified as hawala dealers by the Sales Tax Department. The Assessing Officer (AO) treated these purchases as bogus and estimated profit at 12.5%.

What were the issues?

The primary issue was the estimation of profit on bogus purchases made by the assessee and the appropriate profit rate to be applied.

Which sections of the Income-tax Act were involved?

Section 147

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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI

For Appellant: Shri Vimal Punamiya, AR
Hearing: 19.09.2019Pronounced: 19.09.2019

आयकर अपीलीय अधिकरण “SMC” न्यायपीठ म ुंबई में। IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, MUMBAI श्री महावीर स िंह, न्याययक दस्य एविं श्री शमीम याहया लेखा दस्य के मक्ष । BEFORE SRI MAHAVIR SINGH, JM AND SRI SHAMIM YAHYA, AM आयकर अपील िं/ (यिर्ाारण बर्ा / Assessment Year 2009-10) Shri Kamleshkumar G Sanghvi M/s Kamlesh Steel & Engg. Co. Room No. 11, Mapkar Building, ……………. Appellant 1st Floor, 1st Panjarapole Land, / अपीलाथी Mumbai-400 004 स्थायी लेखा िं /PAN – ACAPS6537N v/s The Income Tax Officer …………….Respondent Ward 19(2)(2) / प्रत्यथााी MATRU Mandir, Nana Chowk Mumbai-400 007, अपीलाथाी की ओर े / Appellant by : Shri Vimal Punamiya, AR प्रत्यथाी की ओर े / Respondent by : Shri Akhtar H Ansari, DR ुिवाई की तारीख / Date of hearing: 19.09.2019 घोर्णा की तारीख / Date of pronouncement : 19.09.2019 A a d o S a / O R D E R महावीर स ुंह, न्याययक दस्य/ PER MAHAVIR SINGH, JM: This appeal of assessee is arising out of the order of Commissioner of Income Tax (Appeals)-53, Mumbai in Appeal No. CIT(A)-53/IT-306/ITO-19(2)(2)/2017-18 dated 16.05.2018.

The assessment was framed by the Income Tax Officer- ward 19(2)(2), Mumbai (in short ITO/ AO) for AY 2009-10 vide dated 26.02.2015, under section 147 of the Income-tax Act, 1961 (hereinafter ‘the Act’).

2.

The only issue in on merits, in this appeal of assessee is against the order of CIT(A) confirming the action of the AO in estimating the profit rate at 12.5% of the bogus purchases.

3.

Briefly stated facts are that the assessee engaged in the business of trading in Ferrous & Ferrous Metals. 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 Rs. 53,12,159/- as admitted by these hawala dealers in their deposition before the authorities. The same reads as under: -

Sl No. Name of the Hawala Party Amount 1. RJ metal industries 11,54,611 2. Subh Labh Metal And alloys / 2,14,592 bright enterprises 3. Rolex trading company 3,93,120 4. Victoria trading co 67,757 5. Kanak Steel (india) 36,457 6. Wel steel (India) 2,45,107 7. Rajratan metal india 7,51,936 8. Priya stel corporation 2,87,164 9. Rajendra metal industries 3,42,026 10. Prakash steel & Engineering Co. 3,78,449 11. Monal metal alloys Pvt. Ltd. 14,24,109 Total 53,12,159

4.

During the course of assessment proceedings and during appellate proceedings, the assessee submitted documentary evidences such as 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 purchase at 12.5% of ₹ 6,64,020/- to the returned income of the assessee Aggrieved, assessee preferred the appeal before CIT(A), who sustained the disallowance at 12.5% of the bogus purchases by observing in para 5.7 & 5.8 and by following the decision of Hon’ble Gujarat High court in the case of CIT vs. Smith P. Seth (2013) 356 ITR 451 (Guj) by observing as under: - “5.7 I am guided by the ratio of decision of the Hon'ble Gujarat High Court in the case of CIT Vs Simit P. Sheth pronounced on 16.1.2013 in tax appeal No.5531 of 2012 wherein the Hon'ble Court have held that when the total sale is accepted by the AO, then the entire purchases cannot be added to the income of the appellant. The Hon'ble Court have, therefore, held that fair profit ratio would be needed to be added back to the income of the assessee. 5.8 Even if materials have been purchased, they are not purchased form

these parties and may be in cash from un- disclosed parties. By purchasing from the grey market, the appellant would have benefitted by the savings of taxes. Therefore, in fact and circumstances of the case, in this particular case. it is considered most appropriate to adopt 12.5% profit which can take care of the rotation of capital utilized for such transaction. Hence in the light of finding of the 1-lonbie Gujarat High Court in the case of CIT vs. Simit P. Sheth, 12.5% profit is found to be appropriate for ascertainment of taxable income related to such transaction. This is exactly what the assessing officer has done in this case. Thus, the Ground of Appeal

No. 1 is dismissed.”

5. We have considered the issue and gone through the facts and circumstances of the case. We find from the facts of the case and argument of both the sides, that the CIT(A) has applied the profit rate at the rate of 12.5%, which according to me is on higher side going by the nature of business of the assessee i.e. Ferrous and non-ferrous. I am in full agreement with the argument of the learned Counsel for the assessee and according to me a profit rate of 12.5% will meet the end of justice in view of the decision of Hon’ble Gujarat High Court in

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