INCOME TAX OFFICER-19(3)(4), MUMBAI vs. SUPREME STEEL IMPEX, MUMBAI

The present appeal has been preferred by the Revenue against the order dated 06.03.2017 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2009-10.

At the outset, when the case was called up for hearing, neither the assessee nor its authorised representative was present to attend the hearing. We are therefore proceeding to dispose of the appeal ex-parte after hearing the Ld. D.R. and taking into account the facts on record.

The only issue raised by the Revenue in various grounds of appeal is against the order of Ld. CIT(A) in confirming the addition to the tune of 6.5% of the total bogus purchases as

The facts in brief are that the assessee is a trader in ferrous and non ferrous items and filed return of income on 27.09.2009 declaring an income of Rs.6,04,485/- which was processed under section 143(1) of the Act. The AO received the information from DGIT (Inv.) Mumbai vide letter dated 26.12.2013 that the assessee is beneficiary of bogus purchase transactions from 8 parties to the tune of Rs.1,07,10,709/-. Consequently, the case of the assessee was reopened under section 147 by issuing notice under section 148 dated 08.03.2014. The assessee filed a return of income in response to notice issued under section1 48. Thereafter, the statutory notices were duly issued and served upon the assessee. During the course of assessment proceedings, the assessee was called upon to furnish various evidences as mentioned in page No.2 of the assessment order to prove the genuineness of the purchases which was provided by the assessee on various dates of hearing. Ultimately the books of accounts of the assessee were rejected under section 145(3) of the Act and the purchases were treated as bogus and sham and consequently added to the income of the assessee for the reason that notices were issued under section 133(6) to these parties were retuned unserved.

In the appellate proceedings, the Ld. CIT(A) partly allowed the appeal of the assessee by sustaining the addition at 6.5% of the bogus purchases on the ground that in the case of CIT vs. Simit P. Sheth (2013) 356 ITR 451 (Guj.) the Hon’ble Gujarat High Court had directed the addition to be made at 12.5% when the VAT rate was 10% and GP was taken at 2.5%. The Ld.

After hearing ld DR and perusing the material on record, we observe that in this case the sales of the assessee are not disputed and therefore the possible presumption is that the assessee might have purchased the goods from the grey market thereby making various types of savings such as non payment of VAT and other incidental charges. In our opinion, the Ld. CIT(A) has passed a very reasoned order by giving a finding that the VAT rate applicable to the assessee is only 4% as the assessee is dealing in steel items and reasonably added to 2.5% on VAT to arrive at 6.5% to assess the profit on the bogus purchases over and above what has been declared in the books of accounts. The Ld. CIT(A) has followed the decision of Hon’ble Gujarat High Court in the case of CIT vs. Simit P. Sheth (supra) in which the facts are that the VAT rate was 10% and GP was taken only 2.5%. Under these circumstances, we do not find any infirmity in the order of Ld. CIT(A) and accordingly we are inclined to uphold the same by dismissing the appeal of the Revenue.

In result the appeal of the revenue is dismissed.