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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SRI MAHAVIR SINGH
These appeal of assessee is arising out of the order of Commissioners of Income Tax (Appeals)-6, Mumbai [in short CIT(A)], in Appeal Nos. CIT(A)-6/IT-180/190/2017-18 vide order dated 27.04.2018. The Assessment was framed by the Asst. Commissioner of Income Tax, Circle-19(3), Mumbai (in short ‘ACIT/
AO’) for the A.Y. 2011-12 vide 07.12.2016 under section 143(3) 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.
Briefly stated facts are that the assessee engaged in the business of trading of tools i.e. Hardware and General Store items under the name and style of proprietorship concern, m/s Vinayak Trading Corporation. 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. 117,97,506/- as admitted by these hawala dealers in their deposition before the authorities. The same reads as under: -
“Sl Name of party Amount No. 1. Dhani Products Pvt. Ltd. 13,21,583 2. Real Value commercial pvt. Ltd. 47,59,23 Total 17,97,506 3. According to information received the name of this party was appearing in the list of hawala entry operators as supplied by sales Tax Department of Maharashtra. The hawala traders admitting before the sales tax authorities in their deposition that they were providing only accommodation purchase bills on commission basis without being actual purchase/ sale of goods. The AO during the course of scrutiny assessment proceedings required the assessee to file the details of purchase. The assessee filed copies of purchase bills from the above said parties, copies of ledger extract and copies of bank statements to prove the payments by cheque. The AO required the assessee to produce these parties for verification but assessee expressed his inability to do so. According to the AO, the assessee failed to establish the genuineness of the purchase and accordingly, he made addition of profit rate @ 12.5% of unproved purchase at Rs.2,24,688/- to the return income of the assessee. Aggrieved, assessee preferred the appeal before CIT(A), who sustained the disallowance at 12.5% of the bogus purchases by observing in para 8.3.6 as under: -
“8.3.6 The facts of the present case are exactly similar to the above case. The appellant made purchases from two 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 purchases 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 A.O. in estimating the addition Ca 12.5% on the total purchases from the two parties is found to be justifiable It is further mentioned that the assessee. during the assessment proceedings has accepted such addition proposed by the AO Therefore. the assessee should not have had any grievance at all to file this appeal. In view of the facts and circumstances of the case and & scussion hereinabove, this ground is dismissed.”
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, that the CIT(A) has applied the profit rate at the rate of 12.5%, which according to me is on higher side going by the nature of business of the assessee i.e. trading of tools. I am in full agreement with the argument of the learned Counsel for the assessee and according to me a profit rate of 12.5% will meet the end of justice in view of the decision of Hon’ble Gujarat High Court in the case of CIT vs. Smith P. Seth (2013) 356 ITR 451 (Guj) but assessee has also paid the VAT element on these bogus purchases, a further deduction in estimation of profit to the extent of 7.5% can be allowed. Hence, I direct the AO to recompute the income after applying profit rate at the rate of 5% and compute the income accordingly. The appeal of the assessee is partly allowed.
In the result, the appeal of assessee is partly allowed.
Order pronounced in the open court on 25-06-2019.