MILAN KANTILAL SHAH,MUMBAI vs. ITO WD - 27(2)(3), MUMBAI

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ITA 5161/MUM/2018Status: DisposedITAT Mumbai19 September 2019AY 2009-105 pages
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What did the Tribunal hold?

The Tribunal found the 12.5% profit rate to be on the higher side, considering the business and VAT paid on these purchases. It directed the AO to recompute the income by applying a profit rate of 5%.

What were the facts?

The assessee, dealing in iron and steel, made purchases from parties identified as 'hawala' dealers by the Sales Tax Department. The Assessing Officer (AO) added 12.5% of these purchases to the income, which was confirmed by the CIT(A).

What were the issues?

Whether the addition of profit at 12.5% on bogus purchases is justified, and if not, what is 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

Hearing: 19.09.2019Pronounced: 19.09.2019

Heard together (2 matters)

ITA No. 5161/Mum/2018
ITA No. 5162/Mum/2018

Read from the judgment's own cause title. This page is filed under one of them.

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) आयकर अपील िं/ (यिर्ाारण बर्ा / Assessment Year 2010-11) Mr. Milan Kantilal Shah 203, Ami Villa Society, Amrut Nagar, Ghatkopar ……………. Appellant West Mumbai-400 086 / अपीलाथी स्थायी लेखा िं /PAN – AAMPS9266N v/s The Income Tax Officer, …………….Respondent Ward 27(2)(3), 4th Floor, Vashi Income Tax, / प्रत्यथााी Mumbai अपीलाथाी की ओर े / Appellant by : Dharmil Jhaveri, AR प्रत्यथाी की ओर े / Respondent by : 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: These appeals of assessee are arising out of the orders of Commissioner of Income Tax (Appeals)-25, in Appeal No. CIT(A)-25/IT-266, 808/2015-16/169 & 132 dated 16.05.2018 & 05.06.2018. The assessments were framed by the Income Tax & 5162/Mum/2018 2 | P a g e Officer- ward 27(2)(3), Mumbai (in short ITO/ AO) for AY 2009- 10 & 2010-11 vide dated 17.03.2015 & 26.03.2013, under section 147 of the Income-tax Act, 1961 (hereinafter ‘the Act’).

2.

The only issue in these two appeals of assessee is against the order of CIT(A) confirming the addition made by AO applying the profit rate at 12.5% of the bogus purchase. For this assessee has raised identically worded grounds in both the years except the quantum. The facts and circumstances are exactly identical in both the years and hence, we will take the facts from AY 2009-10 and decide the issue.

3.

Briefly stated facts are that the assessee engaged in the business of dealing in iron and steel 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. 74,09,802/-/- for AY 2009-10 & ₹ 1,47,66,139/- for AY 2010-11 as admitted by these hawala dealers in their deposition before the authorities. The same reads as under: - 2009-10

Sl No. Name of the Hawala Party Amount 1. National Trading Co. 6,02,482/- 2. Siddhivinayak Trading Co. 8,68,835/- 3. Deepali Enterprises 19,44,747/- 4. Omkar Trading Co. 28,18,301/- 5. Rekha Trading Co. 7,01,245/- 6. Renuka Sales Corpn. 27,87,561/- 7. Bright Corpn. 15,20,106/- 8. M.R. Corporation 99,240/- 9. Prayosha TradingCo. 3,69,793/- & 5162/Mum/2018 3 | P a g e 10. Sun Enterprises 3,75,046/- 11. Asian Steel 11,561 12. S.S. Enterprises 8,43,962/- 13. Pravesh Enterprises 18,15,925/- 14. H.S. Trading Co. 7,435/- 15. Total 1,47,66,139/- 2010-11

Sl No. Name of the Hawala Party Amount 1. National Trading Co. 53,407/- 2. Omkar Trading Co. 8,55,622/- 3. Deepali Enterprises 9,42,601/- 4. Renuka Sales Corporation 48,825/- 5. Rekha Trading Co. 3,73,666/- 6. Leo Impex 4,07,680/- 7. Amar Enterprises 4,15,069/- 8. BRIGHT Corporation 8,20,207/- 9. Asian Steel 8,010/- 10. S.S.Enterprise 3,67,338/- 11. Pravesh Enterprises 21,17,377/- Total 74,09,802/- 4. The AO issued noticed under section 133(6) to the parties which returned back and assessee failed to produce these parties. 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 ₹ 18,45,770/- for AY 2010- 11 & ₹ 9,26,225/- for AY 2011-12 to the returned income of the assessee. Aggrieved, assessee preferred the appeal before CIT(A), who confirmed the addition made by the AO by observing in para 7 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: - & 5162/Mum/2018 4 | P a g e “7. In view of the above discussed factual matrix and precedents, I am of the view that the AO is justified in estimating the profit element calculated @ 12.5% embedded in impugned purchases of ₹ 1,47,66,139/- shown from the alleged hawala parties and adding the same to the total income returned. The assessment order of the AO is a well- reasoned and a speaking order giving in detail the reasons for his fair estimation and therefore, I do not see any reason to take a view in the matter different from the one taken by the Assessing Officer. The action of the AO in estimation of 12.5% GP is sustained. Thus, the ground of appeal

No 1 & 2 are 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 confirmed the profit rate at the rate of 12.5%, which according to us is on higher side going by the nature of business of the assessee i.e. iron and steel. We are in full agreement with the contentions raised by the assessee before CIT(A) and according to us a profit rate of 12.5% is on higher side as assessee has also paid the VAT element on these bogus purchases, a further deduction in estimation of profit to the extent of 7.5% can be allowed. Hence, we direct the AO to recompute the income after

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