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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)-6, Mumbai [in short CIT(A)], in Appeal No CIT(A)-6/IT-97/1765/2017-18 vide order dated 25.05.2018. The Assessment was framed by the Income Tax Officer, Ward 19(3)(1), Mumbai (in short ‘ITO/ AO’) for the A.Y. 2010-11 vide order dated 29.01.2016 under section 143(3) read with section 147 of the Income Tax Act, 1961 (hereinafter ‘the Act’).
2 2. The only issue in on merits, in this appeal of assessee is against the order of CIT(A) directing the AO to restrict the addition made by AO being estimating profit percentage at the rate of 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.73,20,784/- as admitted by these hawala dealers in their deposition before the authorities. The same reads as under: - Name Amount Shankeshwar Sales 4,21,032 Corporation Manohar Metal (India) 5,98,853 Kank Guru Tubes & 2,95,165 Metals Pvt. Ltd. Mahaveer Metal 7,71,751 Corporation Arihant Trading Co. 4,68,078 Prakash Steel Alloys 2,23,737 P.M. Steel Alloys 33,03,267 Champion Steel (India) 4,56,220 Chirang Steel Centre 3,25,358 Subham Metal 3,89,969 Corporation New Era Enterprises 40,354 Total 73,20,784 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 3 addition of unproved purchase at 25% of ₹ 18,30,196/- to the returned income of the assessee. Aggrieved, assessee preferred the appeal before CIT(A), who restricted the addition @ 12.5% of the bogus purchases as against made by the AO, by observing in paras 7.3.5 & 7.3.6 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:
“7.3.5 In the present case, AO concluded that the assessee indulged in non-genuine transaction and intention of indulging in such activity is to suppress the true profits and to reduce the tax liability. Therefore, an addition on account of a higher margin of profit is fair and equitable. In the decision of Hon'ble Gujarat High court in the case of CIT vs. Simit Sheth 366 ITR 451 (Guj) wherein also it is found that some of the alleged suppliers of steel to the assessee had not supplied any goods but had only provided sale bills and hence, purchases from the said parties were had to be bogus. The AO in that case added the entire amount of purchases to gross profit of the assessee. Ld. CIT(A) having found that the assessee had indeed purchased though not from named parties but other parties from grey market, partially sustained the addition as probable profit of the assessee. The Tribunal however, sustained the addition to the extent of 12.5%. Taking into account the above facts, the Hon'ble Gujarat High court held that since the purchase were not bogus but were made from parties other than those mentioned in books of 4 accounts, only the profit element embedded in such purchases could be added to the assessee’s income and concluded that no question of law arose in such estimation. As far as assessee’s reliance on various decision of Hon'ble ITAT are concerned, it is stated that they have been delivered in respect of specific facts of those cases and thus cannot be generalized.
7.3.6 The facts of the present case are exactly similar to the above case. The appellant made purchase from eleven parties who are said to be hawala operators, who are indulged in providing bogus bills without supply of any material. Under these circumstances, as the appellant could not prove his claim of purchase debited to the profit & Loss Account there is no other way to the AO, but to estimate the profit element embedded on such purchases. As stated earlier, the facts of the present case are exactly similar to the cited case and respectfully following the above cited decision, the action of the AO in estimating the action @ 25% on the total purchase from the eleven parties is restricted to 12.5% of such purchase. Accordingly, ground Nos. 1 to 6 and 8 of appeal are partly allowed.”