BAFNA METAL CORPORATION,MUMBAI vs. ITO 19(1)(2), MUMBAI

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ITA 4389/MUM/2018Status: DisposedITAT Mumbai24 July 2019AY 2011-125 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 nature of the business and VAT paid on bogus purchases. It directed the AO 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 providing bogus bills. The Assessing Officer (AO) estimated profit at 12.5% on these purchases, which was confirmed by the CIT(A).

What were the issues?

Whether the profit rate estimated by the AO and confirmed by the CIT(A) on bogus purchases was justified, and if a lower rate could be applied.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 147

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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI

Before: SRI MAHAVIR SINGH

For Appellant: Shri Rajkumar Singh, Ms. Aditi Shroff, ARs
Hearing: 26.06.2019Pronounced: 24.07.2019

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)-30, Mumbai [in short CIT(A)], in Appeal No. CIT(A)-30/19(1)(2)/1562/2015-16 vide order dated 2 11.05.2018. The Assessment was framed by the Income Tax Officer, Ward 19(1)(3) Mumbai (in short ‘ITO/ AO’) for the A.Y. 2011-12 vide order dated 30.10.2015 under section 143(3) read with 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 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.31,21,669/- as admitted by these hawala dealers in their deposition before the authorities. The same reads as under: - Name Amount Mortan Steel India 31,21,669 Total 31,21,669 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 ₹ 3,90,209/- 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 7.8 & 7.9 by following the decision of Hon’ble Gujarat High Court in the 3 case of CIT vs. Smith P. Seth (2013) 356 ITR 451 (Guj) by observing as under:

“7.8 As the AO concluded that the appellant has not purchased from those parties, but considering the facts of the case that the goods have been sold and the assessee offered the profit on sale for taxation, treated the purchases are from the grey market at a lower price which carries higher margin of profit than the one offered to tax. The decision of Hon'ble Gujarat High Court in the case of CIT vs. Simit Sheth 356 FIR 451 (Gui) 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 held to be bogus. The AO in that case added the entire amount of purchases to gross profit of the assessee. Ld. CJT(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 purchases were not bogus, but were made from parties other than those mentioned in books of accounts, only the profit element embedded in 4 such purchases could be added to the assessee's income and as such no question of law arose in such estimation.

7.9 Even during the course of appellate proceedings, nothing further has been brought before me so as to enable me to take a different view from the one taken by the Ld. AO. On perusal of the facts and circumstances of the present case, it is found that the same are similar to the above case. In view of the same, respectfully following the above cited decision and also considering assessee's request to complete assessment after making a reasonable addition, the addition made by the AO @12.5% of the purchases of Rs. 31,21,669/- made from one party is 'Confirmed'. The appeal on Ground No. b is treated as 'Dismissed'.”

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