TEJDEEP STEELS,MUMBAI vs. INCOME TAX OFFICER 19(3)(5), MUMBAI

The only issue in this appeal of assessee is against the order of CIT(A) confirming the addition made by AO applying the profit rate at 12.5% of the bogus purchase. For this assessee has raised identically worded grounds in both the years except the quantum. The facts and circumstances are exactly identical in both the years and hence, we will take the facts from AY 2009-10 and will decide the issue.

Briefly stated facts are that the assessee engaged in the business 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. ₹ 54,46,304 for AY 2009-10 & 71,86,296/- for AY 2011-12 as admitted by these hawala dealers in their deposition before the authorities. The same reads as under: - 2009-10 Name of party Amount Rishab Metal (India) 866146 R K. Metal 1624421 Ranakpur Sales Corpn 1098995 ITAs No.4339 & 4340/Mum/2018 Vandana Metal Syndicate 1523932 Shrinath Trading Co. 332810 Total 5446304 2011-12 Name of party Amount Veer Industries 1,34,714 Sunidhi Metal 2,10,366 Vandna Metal Syndicate 2,63,640 Ridhi Sales Corporation 54,475 Mukta Steel 13,95,877 Darshat Trading Pvt. Ltd. 8,12,240 Akshar Distributors Pvt. Ltd. 8,38,236 Khimsar Impex Pvt. Ltd. 10,70,410 Evershine enterprises 7,50,109 Remdev Trading Company 7,33,418 Reannex Impex Pvt. Ltd. 7,88,097 R K. Metal 1,34,714 Total 71,86,296 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 ₹ 6,80790/- for AY 2009-10 & ₹ 8,98,287/- for AY 2011-12 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 para 6.2 & 7 by following the decision of Hon’ble 4 ITAs No.4339 & 4340/Mum/2018 Gujarat High court in the case of CIT vs. Smith P. Seth (2013) 356 ITR 451 (Guj) by observing as under: - “6.2 In this back drop of addition made by the AO and also various submission placed by the appellant, I do not find any reason to interfere with the order of the AO on this issue and therefore the addition made by the AO is upheld. Therefore, all these grounds are on the addition of Rs.6,80,790/- and the same has been upheld. Therefore, accordingly these grounds are treated as disposed off.

In the result, the appeal is treated as 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 confirmed 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. ferrous and Non-ferrous. I am in full agreement with the contentions raised by the assessee before CIT(A) and according to me a profit rate of 12.5% is on higher side as 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.