SHRI RAMESHKUMAR DAULATRAJ MEHTA,MUMBAI vs. INCOME TAX OFFICER-19(3)(1), MUMBAI

This appeal filed by the assessee is arising out of the order of Commissioner of Income Tax (Appeals)-53, Mumbai [in short CIT(A)], in appeal No. CIT(A)-53/IT-368/ITO-19(3)(1)/2017-18, dated 17.04.2018. The Assessment was framed by the Income Tax Officer, ward -19(3)(1), Mumbai (in short ITO/ AO’) for the A.Y. 2011-12 vide order dated 13-11- 2016 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).

“1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the action of the AO in re-opening the assessment under section 147 of the Income Tax Act, 1961 as the prescribed conditions therein are not satisfied.”

Name of party Amount HarshilFerrome Pvt. Ltd. 18,91,730/- MarutiImpex 25,51,212 Rehbar Enterprise 13,726 Subham Steel Impex 28,20,278/- total 72,76,946 6. 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 ₹ 9,09,618/- 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 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: -

“5.7. Even if materials have been purchased, they are not purchased form these parties and may be in cash from un-disclosed parties. 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. Simit P. Sheth, 12.51/o profit is found to be appropriate for ascertainment of taxable income related to such transaction. It is noted from TAR that though the appellant is a trader, no stock records are maintained. The assessing officer has made disallowance @ 12.5%. The same is reasonable and is sustained. Thus the Ground of appeal 3 is dismissed."

Aggrieved, assessee came in appeal before Tribunal.

“Sale Excluding VAT 7137429.61 Purchase Excluding VAT/ CST 6965878.40 Gross Profit 171551.21 Gross Profit Rate 2.40” From the above, the learned Counsel for the assessee also referred to the total statement of purchase, sales and consequent profit in regular business, which is at 5.48% and the relevant details are as under: - Total purchase Total sale (Other Total purchase Total sale (From (Other than the than the sales as (From the purchase the purchase purchase from the regards the parties in dispute) parties in dispute) purchase parties in purchase parties in dispute) dispute) 1,62,81,879 1,72,26,692 69,65,879 71,37,430 Add: VAT 3,11,066 1,49,518 8. In view of the above, the learned Counsel for the assessee referred to the judgement of Hon’ble Bombay High Court in the case of PCIT vs. Mohammad Haji Adam & Co. and Ors. in Income Tax Appeal No. 1004 of 2016 and others, dated 11.02.2019, wherein Hon’ble Bombay High Court has affirmed the findings of the Tribunal wherein the GP rate restricted on the additions limited to the extent of bogus purchases. The learned Counsel for the assessee referred to the following para 8 of the judgement which read as under: -

“8 In the present case, as noted above, the assessee was a trader of fabrics. The A.O. found three entities who were indulging in bogus billing activities. A.O. found that the purchases made by the assessee from these entities were bogus. This being a finding of fact, we have proceeded on such basis. Despite this, the question arises whether the Revenue is correct in contending that the entire purchase amount should be added by way of assessee's additional income or the assessee is correct in contending that such logic cannot be applied. The finding of the CIT(A) and the Tribunal would suggest that the department had not disputed the assessee's sales. There was no discrepancy between the purchases shown by the assessee and the sales declared. That being the position, the Tribunal was correct in coming to the conclusion that the purchases cannot be rejected without disturbing the sales in case of a trader. The Tribunal, therefore, correctly restricted the additions limited to the extent of bringing the G.P. rate on purchases at the same rate of other genuine purchases. The decision of the Gujarat High Court in the case of N.K. I (supra) cannot be applied without reference to the facts. In fact in paragraph 8 of the same Judgment the Court held and observed as under-

“ So far as the question regarding addition of Rs.3,70,78,125/- as gross profit on sales of Rs.37.08 Crores made by the Assessing Officer despite the fact that the said sales had admittedly been recorded in the regular books during Financial Year 1997-98 is concerned, we are of the view that the assessee cannot be punished since sale price is accepted by the revenue. Therefore, even if 6 % gross profit is taken into account, the corresponding cost price is required to be deducted and tax cannot be levied on the same price. We have to reduce the selling price accordingly as a result of which profit comes to 5.66 %. Therefore, considering 5.66 % of Rs.3,70,78,125/- which comes to Rs.20,98,621.88 we think it fit to direct the revenue to add Rs.20,98,621.88 as gross profit and make necessary deductions accordingly. Accordingly, the said question is answered partially in favour of the assessee and partially in favour of the revenue.

9. In these circumstances, no question of law, therefore, arises. All Income Tax Appeals are dismissed, accordingly. No order as to costs.”