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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 2 Appeal No CIT(A)-32/IT-492/20(1)(2)/17-18 vide order dated 17.10.2018. The Assessment was framed by the Income Tax Officer, Ward 20(1)(2) Mumbai (in short ‘ITO/ AO’) for the A.Y. 2010-11 vide order dated 20.12.2017 under section 143(3) read with section 147 of the Income Tax Act, 1961 (hereinafter ‘the Act’).
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 an individual running a proprietary concern in the name and style of M/s Axis Pipes & Tubes Corp doing the business of reseller in all kinds of M.S. Pipes and Tubes. 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. 81,23,740/- as admitted by these hawala dealers in their deposition before the authorities. The same reads as under: - Siddhivinayak Steel 47,46,742 Asian Steel 11,95,272 Surat Tube corporation 12,06,036 Rupani & Co. 79,720 Maruti Steel Traders 2,99,894 Total 81,23,740 4. During the course of assessment proceedings and during appellate proceedings, the assessee submitted documentary evidences such as 3 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 ₹ 20,30,935/- 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 paras 5.6 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:
“5.6 The Hon'ble ITAT, Ahmedabad 'C' Bench in the case of Vijay Proteins Ltd. vs. ACIT 58 lTD 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 v/s CIT 316 ITR 0274 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 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 4 the sale is accepted by the AO, the very basis of purchases could not be questioned. Not the entire purchase price could be disallowed but only the profit 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 25%.
Considering the facts of the case and submissions made, I do not find any infirmity in the action of the AO in making an addition 25% of the alleged bogus purchases is therefore confirmed. This ground of appeal is dismissed.”