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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY
The aforesaid appeal has been filed by the assessee challenging the order dated 3rd March 2017, passed by the learned Commissioner (Appeals)–32, Mumbai, for the assessment year 2010–11.
The dispute in the present appeal is confined to the addition made on account of non–genuine purchases.
Brief facts are, the assessee, an individual, is engaged in the business of trading in ferrous and non–ferrous metals through his proprietorship concern M/s. Rohan Traders. The return of income filed
2 Shri Lalit Kumar Mangilal Jain by the assessee was initially processed under section 143(3) of the Income-tax Act, 1961 (for short "the Act"). Subsequently, on the basis of information received from external sources that purchases worth ` 3,30,06,862, made from three parties are non–genuine, the Assessing Officer re–opened the assessment under section 147 of the Act. In the course of assessment proceedings, apart from called upon the assessee to furnish necessary evidences to prove the genuineness of purchases, the Assessing Officer independently conducted enquiry by issuing notices under section 133(6) of the Act to the selling dealers for verifying the genuineness of the purchases. As observed by the Assessing Officer, none of the notices issued could be served on the concerned parties. The assessee also failed to furnish the parties before the Assessing Officer. Therefore, he called upon the assessee to explain why the purchases claimed to have been made should not be held as non–genuine. Though, the assessee justified its claim of purchases made to be genuine, however, the Assessing Officer did not accept the claim of the assessee. After rejecting the Books of Account of the assessee under section 145(3) of the Act, the Assessing Officer proceeded to estimate profit @ 12.5% on the non–genuine purchases which resulted in an addition of ` 41,25,858. The assessee challenged the addition before the first appellate authority.
3 Shri Lalit Kumar Mangilal Jain 4. After considering the submissions of the assessee, learned Commissioner (Appeals) restricted the addition to 5% of the non– genuine purchases. Accordingly, the addition of ` 16,50,343, was sustained.
The learned Authorised Representative submitted, the profit rate in the nature of business carried out by the assessee varies between 1% and 2%. She submitted, the assessee has already declared gross profit @ 6%. She submitted, if the addition is sustained @ 5%, the profit rate will be unreasonably high which is impossible to achieve in this line of business. She submitted, in the similar nature of business the Tribunal has adopted profit rate of 2%. Thus, she submitted, the addition should be restricted to 2% of the non–genuine purchases. In support of her contention, she relied upon the following decisions:–
i) Giolife Organics, ITA no.3699/Mum./2016 & Ors., dated 05.05.2017; and ii) Muffazal Hakim Penwala, ITA no.3739/Mum./2017, dated 20.09.2017.
The learned Departmental Representative relied upon the observations of the learned Commissioner (Appeals).
I have considered rival submissions and perused material on record. No doubt, the assessee has failed to conclusively prove the genuineness of purchases made from the declared source. However,
4 Shri Lalit Kumar Mangilal Jain the sales effected by the assessee have not been doubted. Therefore, the Assessing Officer has restricted the addition to the profit element embedded in the non–genuine purchases. The dispute in the present appeal is only with regard to the reasonable profit rate at which the addition can be made. Learned Commissioner (Appeals) has estimated the profit @ 5%. As could be seen, the assessee is a dealer in ferrous and non–ferrous metals where the profit margin is very low. Further, from the chart submitted before me, it is noticed that the gross profit rate shown by the assessee in the preceding as well as subsequent assessment years varies between 2% and 6%. Whereas, the net profit rate is around 1%. Considering the above, I am of the view that addition @ 2% of the non–genuine purchases would suffice. Accordingly, I direct the Assessing Officer to restrict the addition to 2% of the non–genuine purchases. It is made clear, the aforesaid decision is purely on the basis of facts involved in the present appeal, hence, will not apply to any other case. Grounds are partly allowed.
In the result, appeal is partly allowed. Order pronounced in the open Court on 30.04.2019