SHRI KAMLESH PANCHARAM PATEL,MUMBAI vs. ITO 19(2)(2), MUMBAI

The only issue in these appeals 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, I will take the facts from AY 2010-11 and will decide the issue.

Briefly stated facts are that the assessee 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 ₹ 60,36,721/- for AY 2010-11 & ₹ 48,47,393/- for AY 2011-12 as admitted by these hawala dealers in their deposition before the authorities. The same reads as under: - 2010-11 Name of party Amount Siddhivinayak Dteel 8,03,726 Chanchal Tube Corporation 49,920/- 51,83,075/- Total 60,36,721 2011-12 Name of party Amount Siddhivinayak Steel 9,20,925 Chanchal Tube Corporation 6,86,868 Surat Tube Corporation 12,99,472 Asian Steel 19,40,128 Total 48,47,393 4. The AO issued noticed under section 133(6) to the parties which returned back and assessee failed to produce these parties. 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 ₹ 7,54,590/- for AY 2010-11 & ₹ 6,05,924/- 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 5.7 & 5.8 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 observing as under: - “5.7 I am guided by the ratio of decision of the Hon'ble Gujarat High Court in the case of CIT Vs Simit P. Sheth pronounced on 16.1.2013 in tax appeal No.5531 of 2012 wherein the Hon'ble cannot be added to the income of the appellant. The Hon'ble Court have, therefore, held that fair profit ratio would be needed to be added back to the income of the assessee 5.8 Even if materials have been purchased, they are not purchased form these parties and may be in cash from un-disclosed parties. Thus if purchases recorded in books are not established to be genuine, rejection of books is warranted. By purchasing from the grey market, the appellant would have benefitted by the savings of taxes. Therefore, in fact and circumstances of the case, in this particular case, it is considered most appropriate to adopt 12.5% profit which can take care of the rotation of capital utilised for such transaction. Hence in the light of finding of the Hon’ble Gujarat High Court in the case of CIT vs. Sirnit P. Sheth, 12.5% profit is found to be appropriate for ascertainment of taxable income related to such transaction. This-is exactly what the-assessing officer has done in this case. Thus, the Ground of Appeal No.2 is dismissed.”