PRAVIN DAYALDAS GANDHI,MUMBAI vs. ITO - 32(2)(5), MUMBAI

The above titled four appeals have been preferred by the assessee against the order dated 09.08.2016 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment years 2010-11 & 2011-12.

The issue raised in ground No.1 is against the order of Ld. CIT(A) upholding the reopening of assessment framed by the AO under section 147 of the Act.

The issue raised in ground No.2 is against the confirmation of disallowance to the tune of 12.5% of the alleged bogus purchases of Rs.1,11,71,532/- thereby sustaining an addition of Rs.13,96,441/- which is over and above the gross profits shown by the assessee in the books of accounts.

The facts in brief are that the assessee filed return of income on 11.09.2010 declaring an income of Rs.2,40,872/- which was processed under section 143(1) of the Act. Thereafter, the case of the assessee was reopened u/s 147 r.w.s. 148 of the Act after AO received an information from Sales Tax Department, Government of Maharashtra and DGIT, (Investigation) that assessee is a beneficiary of bogus hawala purchase bills to the tune of Rs.1,11,71,532/- from 10 hawala parties as detailed in para 2 of the assessment order. The AO issued notice under section 148 of the Act on 27.02.2014 and thereafter during the assessment proceedings called upon the assessee to furnish various details and evidences to prove the genuineness of these purchases. The AO also issued notices under section 133(6) of the Act to these parties. However, the said notices were not returned unserved or unclaimed. The assessee during the course of assessment proceedings filed bills, vouchers, bank details etc to prove the genuineness of the purchases. However, the AO was not convinced with the said evidences and came to the conclusion that assessee should have furnished the inward stock register and consumption/sales

In the appellate proceedings, the Ld. CIT(A) partly allowed the appeal of the assessee by sustaining the addition to the extent of 12.5% of the bogus purchases thereby confirming the addition to the extent of Rs.13,96,441/- by following the decision of Hon’ble Bombay High Court in the case of Nikunj Enterprises 372 ITR 619 (Bom.). The Ld. CIT(A) observed that the entire purchases can not be added to the income of the assessee and it is only a profit element embedded in these purchases which should be brought to tax and accordingly applied a rate of 12.5% .

After hearing both the parties and perusing the material on record, we observe that the assessee is engaged in the business of trading of iron and steel sheets, angles, coils etc. and the GP rate varies from 1.18% to 2.20% as is apparent from the statement of comparative GP of four years filed during the course of hearing. We note that during the year under consideration, the GP returned by the assessee was 1.83%. The Ld. CIT(A) has correctly held that entire purchases could not be added to the income of the assessee and that only profit element in the said purchases have to be brought to tax however we are not in agreement with the rate applied on the alleged purchases. In this case, we observe that the assessee has already accounted

In the result, the appeal of the assessee is allowed.

In the result, all the four appeals of the assessee are allowed.