SHRI CHUNILAL R. SHAH,MUMBAI vs. ITO-19(1)(3), MUMBAI

Briefly stated, the facts are that the assessee filed his return of income for the assessment year (AY) 2009-10 on 28.08.2009 declaring total income of Rs.2,49,730/-. The return was processed u/s 143(1), accepting the returned income. Thereafter, the Assessing Officer (AO) received information from the Director General of Income Tax (Inv), Mumbai that as per the list given by the Sales Tax Department, Government of Maharashtra, the appellant has made purchases of Rs.1,15,06,586/- from 9 parties, who have issued false bills without delivery of goods. On the basis of the above information, the AO reopened the assessment by issuing notice u/s 148 on 08.03.2014. During the course of assessment proceedings the AO asked the assessee to file (i) name of the seller with current full address, (ii) PAN, (iii) bill and voucher number with date, (iv) description of goods purchased, (v) quantity, (vi) rate, (vii) amount, (viii) goods despatched from (name of the place) with date and (ix) mode of transportation, if by road vehicle number and also payments. Similarly, the AO asked the assessee to file details of corresponding sales of goods and link the purchases with sales supported by bills and vouchers and as reflected in the stock register. The AO observed that though the assessee could furnish few details, but he could not link the purchases with corresponding sales. Also the assessee could not produce the books of accounts for verification before the AO. However, the assessee vide written submission dated 02.02.2015 requested the assessee to complete the assessment after making a reasonable addition. The AO estimated the profit @ 12.5% of the disputed amount of purchases of Rs.1,15,06,586/- and it comes to Rs.14,38,324/- and made an addition of it.

In appeal, the Ld. CIT(A) agreed with the reasons given by the AO and confirmed the addition of Rs.14,38,324/-.

Before us, the Ld. counsel of the assessee submits that the assessee is engaged in the business of trading in ferrous and non-ferrous metals and the profit @ 12.5% estimated by the AO on the disputed purchases is on higher side. Thus it is argued that the profit be estimated at a reasonable rate taking into account the nature of business of the appellant. On the other hand, the Ld. DR supports the order passed by the Ld. CIT(A) confirming the addition of Rs.14,38,324/- made by the AO. 5. We have heard the rival submissions and perused the relevant materials on record. As mentioned earlier the assessee is engaged in the business of trading in ferrous and non-ferrous metals. The AO has mentioned that in response to the query raised by him, the assessee could furnish few details but could not link the purchases with corresponding sales. The AO has estimated the profit @ 12.5% on the disputed purchases of Rs.14,38,324/-. Considering the nature of business of the appellant, we find that such an estimation is on a higher side. Taking into account the facts and circumstances of the case and the nature of business of the appellant we direct the AO to restrict the disallowance to 5% of the disputed purchases of Rs.1,15,06,586/- and bring to tax Rs.5,75,330/- only.