SHRI RAKESHKUMAR S. KHANDELWAL,MUMBAI vs. ITO 17(3)(1), MUMBAI

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 25% of the bogus purchases.

Briefly stated facts are that the assessee is engaged in the business of trading in Iron and steel. 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.21,81,690/- as admitted by these hawala dealers in their deposition before the authorities.

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 25% of ₹ 5,45,423/- 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 5 and 5.1 by observing as under:

I have considered the issue and gone through the facts and circumstances of the case. I find from the facts of the case and argument of both the sides. The CIT(A) has confirmed the profit rate at the rate of 25%, which according to me is on very high going by the nature of business of the assessee i.e. Trading in iron and steel. I am in full agreement with the contentions raised by the assessee before CIT(A) and according to me a profit rate of 25% is on higher side. The normal profit in the Iron and Steel cannot be @ 25% rather it remains between 3 to 5% on the given facts of the case. Even in this case, the assessee has also paid the VAT element on these bogus purchases. Hence, I direct the AO to recompute the income after applying profit rate at the rate of 5% on these bogus purchases and compute the income accordingly. The appeal of the assessee is partly allowed.

In the result, the appeal of assessee is partly allowed.