INCOME TAX OFFICER 33(1)(1), MUMBAI vs. SHRI AJIT NATWARLAL SHAH, MUMBAI

The only common issue in these cross appeals of assessee and Revenue is against the order of CIT(A) directing the AO to restrict the addition made by AO being estimated profit @ 5% on bogus purchase. For this assessee as has raised identically worded grounds in all the years i.e. AYs 2009-10, 2010-11 & 2011-12 except the quantum. The facts and circumstances are exactly identical in all the years and hence, we will take the facts and grounds of appeal from AY 2009-10 and will decide the issue.

On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made in bogus purchase and restricting the addition to 5% of bogus purchases whereas the assessee could not substantiate the claim of genuine purchases during remand proceedings. The CIT(A) could have made inquiry to establish the correct fact in this case while the assessee failed to established genuineness of purchase.”

Briefly stated facts are that the assessee engaged in the business of ferrous and non-ferrous items. 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 ₹ 2,11,88,069/- for AY 2009-10 ₹ 2,11,88,069 for AY 2010-11 & ₹ 1,73,31,728 for AY 2011-12 as admitted by these hawala dealers in their deposition before the authorities. The same reads as under: - For AY 2009-10 Sl. Name of party Amount No. 1. Nageshwar Enterprises 6,11,805 2. Nikhil Enterprises 5,12,055 3. N.B. Enterprises 11,39,457 4. Jainam Trade Corporation 15,59,441 5. Parasnath Enterprises 17,28,846 6. Symphony Metalam Pvt. Ltd. 45,15,582 7. Poonam Aluminium 1,11,16,883 ITAs No.1609-1611/Mum/2018 2257-2258/Mum/2018 Total 2,11,88,069 For AY 2010-11 Sl. Name of party Amount No. 1. Aradhana Corporation 11,85,113 2. Macon Enterprises 81,48,876 3. Jay Traders 64,17,928 4. Darshana Corporation 12,14,104 Total 1,69,66,021 For AY 2011-12 Sl. Name of party Amount No. 1. Macon Enterprises 78,72,222 2. Jay Traders 94,59,506 Total 1,73,31,728 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 whole amount of unproved purchase to the returned income of the assessee. Aggrieved, assessee preferred the appeal before CIT(A), who restrict the addition at 5% by observing in para 5.5 as under: - “5.5 However, on the basis of information obtained from the Sales Tax Department, Assessing officer issued notices under section 133(6) which came back unserved. The Assessing Officer, primarily relying upon the information obtained from the Sale Tax Department and the failure of the appellant to produce delivery challans transportation bills held the purchases to be bogus and added ITAs No.1609-1611/Mum/2018 2257-2258/Mum/2018 100% profit in addition to the normal profit declared by the assessee. Though, it may be a fact bills, etc., to prove the genuineness of the purchases. It is also a fact on record that the Assessing:)- Officer has not doubted the sales effected by the assessee. Thus, it is assessee could not have made the sales. Merely relying upon the information from the Sales Tax Department the Assessing Officer could not have treated the total purchases as bogus, If the Assessing Officer had any doubt with regard to purchases made, it was incumbent upon him to make further investigation to ascertain the genuineness of the transaction. As the Assessing officer has failed to make any enquiry or investigation to prove the fact that the purchase transactions are not genuine, whereas the assessee has brought documentary evidences on record to prove genuineness of such transactions which are not found to be non-genuine, the action of the Assessing Officer in ignoring them cannot be accepted. When the payment to the concerned parties are through proper banking channel and there is back to the assessee, the addition made by estimating further prof it of 100% earned by the assessee on such purchases is not sustainable in law and facts. Only corollary that follows in such situation, as correctly observed by the AO in para 9.4 of the assessment order, is that the assessee could have obtained the accommodation bills to lieu of the material purchased locally. Therefore, the saving on account of VAT and other incidental charges made by the assessee on the said bogus purchases can be brought to tax as additional profit.

We have considered the issue and gone through the facts and circumstances of the case. We 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 5%, which according to us is quite reasonable by the nature of business of the assessee i.e. ferrous and Non-ferrous. We are in full agreement with the contentions raised by the assessee before CIT(A) and according to us a profit rate of 5% is quite reasonable as assessee has also paid the VAT element on these bogus purchases. We find that the CIT(A) has rightly restricted the profit rate at the rate of 5% and we confirm the same. This issue of assessee’s appeal as well as Revenue’s appeal is dismissed.

Since, the facts and circumstances are identical in all the three years, the other two years’ appeals are also dismissed.

In the result, All, the appeals by assessee as well as Revenue are dismissed.