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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: HON’BLE SHRI SANDEEP GOSAIN, JM & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
Per Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year [AY] 2009-10 contest the order of Ld. Commissioner of Income-Tax (Appeals)-25, Mumbai, [CIT(A)], Appeal No. CIT(A)-25/IT-411/2015-16/207 dated 16/11/2017 on following Grounds of appeal: -
1. On the facts and circumstances of the case, Learned Ld. CIT erred in partly confirming the additions made by the AO, for an amount of Rs.1048442/- (8387535*12.5%) and erred in treating the same as bogus purchase ignoring the detailed evidence brought on record & further erred in levying interest thereon and ignoring the judicial precedents brought to his knowledge.
2. Learned CIT(Appeal) erred in disallowing expenditures on adhoc basis to the tune of Rs.76,490/- more particularly disallowance is contrary to the provisions of section 69C since the source is in dispute and not the purchase expenditure.” 2.1 The assessment for impugned AY was framed by Ld. Income Tax Officer-27(1)(1), Mumbai [AO] u/s 143(3) read with Section 147 of the Act on 22/03/2015 wherein the income of the assessee was determined at Rs.68.08 Lacs after certain additions as against returned income of Rs.34.52 Lacs filed by the assessee on 29/09/2009 which was processed u/s 143(1). The estimated addition of Rs.32.79 Lacs on account of alleged bogus purchases & adhoc disallowance of expenses for Rs.0.76 Lacs is the sole subject matter of present appeal before us. The assessee being resident HUF was stated to be engaged in trading of iron & steel under sole proprietorship concern namely M/s Minal Enterprises. 2.2 The reassessment proceedings got triggered by issuance of notice u/s 148 dated 18/03/2014 pursuant to receipt of certain information from DGIT (Investigation) / Sales Tax Authorities that the assessee stood beneficiary of alleged bogus purchases aggregating to Rs.83.87 Lacs from various entities. 2.3 Notices issued u/s 133(6) to all the entities were returned back by postal authorities. The physical inspection of few of these entities by ward inspector revealed that no such parties existed at the given addresses. The aforesaid fact was confronted to the assessee with a direction of provide new addresses or produce the parties along with requisite documents. The assessee defended the purchases vide reply dated 04/03/2015 by submitting ledger extracts, copies of purchase invoices, copies of bank statement evidencing payment through banking channels, stock registers etc. However, none of the suppliers could be produced by the assessee for confirmation of transactions. The overall factual matrix led the Ld. AO to disbelieve these purchases and accordingly, an addition of Rs.32.79 Lacs was worked out against these purchases which was nothing but peak of the cumulative outstanding of the suppliers. Another addition of Rs.76,490/- represent adhoc disallowance of 15% against petty cash expenses incurred under the head conveyance expenses, General expenses, office expenses & telephone expenses.
The Ld. first appellate authority, inter-alia, relying upon the decision of Hon’ble Gujarat High court rendered in CIT Vs. Simit P. Sheth [356 ITR 451] & Bholanath Poly Fab. P. Ltd. [355 ITR 290], restricted the impugned additions to 12.5% but confirmed the stand of Ld. AO in making adhoc addition of Rs.76,490/- against petty cash expenditure. Still aggrieved, the assessee is in further appeal before us.
The Ld. Authorized Representative for Assessee [AR], submitted that the assessee was dealing in low margin item like iron & steel and therefore, the estimates were on the higher side. The Ld. DR submitted that the stand of authorities in impugned order would not warrant any interference.
We have carefully heard the rival submissions and perused relevant material on record including judicial pronouncements cited before us. We are of the considered opinion that there could be no sale without actual purchase of material keeping in view the fact that the assessee was engaged in trading activities. The assessee was in possession of primary purchase documents and maintained adequate stock records to reconcile the quantitative details. The payments to the suppliers were through banking channels. The sales turnover has not been disputed by the revenue. At the same time. notices issued u/s 133(6) to all the suppliers did not elicit satisfactory response. The physical inspection revealed that none of the suppliers existed at the given address. The assessee failed to provide new address of any of the supplier and could not produce any of the suppliers. Therefore, in such a situation, the addition, which could be made, was to account for profit element embedded in these purchase transactions to factorize for profit earned by assessee against possible purchase of material in the grey market and undue benefit of VAT against such bogus purchases, which lower authorities have rightly done. However, it is noticed that the assessee is dealing in a low margin item like metals which is subjected to lower VAT Rate. Another factor to be noted is that the assessee has reflected a Gross Profit Rate of 6.70% and Net profit Rate of 1.34% in the impugned AY. Therefore, keeping in view the totality of facts and circumstances, we reduce the estimated net additions to 3% of alleged bogus purchases of Rs.83,87,535/- which comes to Rs.2,51,626/-. The balance addition stands deleted. This ground stand partly allowed.
The adhoc disallowance of 15% against petty cash expenditure would require no interference on our part in the absence of any fresh material on record. Accordingly, this ground stand dismissed.
The appeal stands partly allowed in terms of our above order. Order pronounced in the open court on 22nd April, 2019. Sd/- Sd/- (Sandeep Gosain) (Manoj Kumar Aggarwal) �ाियक सद� / Judicial Member लेखा सद� / Accountant Member मुंबई Mumbai; िदनांक Dated : 22/04/2019 Sr.PS, Jaisy Varghese