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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SRI MAHAVIR SINGH
AadoSa / O R D E R महावीर स ुंह, न्याययक दस्य/ PER MAHAVIR SINGH, JM:
This appeal of the assessee is arising out of the order of Commissioner of Income Tax (Appeals)-32, Mumbai [in short CIT(A)], in Appeal No CIT(A)-32/IT-80/20(3)91)/15-16 vide order dated 25.01.2018. The Assessment was framed by the Income Tax Officer, Ward 20(3)(1) Mumbai (in short ‘ITO/ AO’) for the A.Y. 2009-10 vide order dated 2 27.02.2015 under section 143(3) read with section 147 of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The only issue 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.
Briefly stated facts are that the assessee is engaged in the business of ferrous and non-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.17,65,998/- as admitted by these hawala dealers in their deposition before the authorities. The same reads as under: - Name Amount Manshi Traders 3000 Baba Impex 17,62,998 Total 33,15,621 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 ₹ 2,20,750/- to the returned income of the assessee. Aggrieved, assessee preferred the appeal before CIT(A), who confirmed the action of 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:
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The Ld. Counsel for the appellant also contends that an opportunity of cross examination has not been provided to him. But when the parties are treated as the witnesses of the assessee, how can the AO provide for cross examination of the same. Moreover, when the parties are not available at the given addresses, there is no way the AO can provide for cross examination of those parties. Mere payment by account payee cheque is not sacrosanct and does not establish the geniuses. As the parties from whom the purchases were supposed to have been made are not found existing, the genuineness of the purchases from such non existing parties was not established.
The Hon’ble ITAT Ahmedabad ‘C’ Bench in the case of Vijay Proteins Ltd. vs. ACIT 58 ITD 0428 held that in similar circumstances 25% of the purchase price accounted through fictitious invoices has to be disallowed. The Hon’ble High Court of Gujarat in the case of Sanjay Oil Cakes Vs. CIT 316 ITR 0247 dealt with similar case where some of the alleged suppliers who had issued bills to the assessee were not genuine as they were not traceable. The goods must have been received from other parties. The likelihood of the purchase price of these alleged 4 purchases being inflated could not be ruled out and therefore the Hon’ble High court has upheld the decision of CIT(A) and the ITAT disallowing 25% of the payments made to such parties. The Hon’ble High Court of Gujarat in the case of CIT vs. Simit P. Sheth 356 ITR 0451 held that once the sale is accepted by the AO, the very basis of purchases could not be questioned. Not the entire purchases price could be disallowed but only the profit element embedded in such purchases could be disallowed but only the proit element embedded in such purchases could be added to the income of the assessee. The estimation varies with the nature of business and no uniform yardstick could be adopted. Given the facts and circumstances of the instant case, I find it reasonable to estimate the gross profit on the alleged bogus purchases at 12.5%.
Considering the facts of the case and submission made, I do not find any infirmity in the action of the AO in making an addition @ 12.5% of the alleged bogus purchases is therefore conformed. This ground of appeal is dismissed.”