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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SRI MAHAVIR SINGH
Aayakr ApIla saM./ (inaQa-arNa baYa- / Assessment Year 2011-12) Mr. Deepak P. Varyani Income Tax Officer, A-501, Benhur Apt, 24(1)(5), Room No. 523, 5 th Floor, Lokhandwala Complex, New Vs. Link Road, Andheri (W), Piramal Chambers Lalbaug, Mumbai-400 063 Lower Parel, Mumbai-400 012 .. (p`%yaqaaI- / Respondent) (ApIlaaqaI- / Appellant) स्थायी लेखा िं./PAN No. AABPV2583L अपीलाथी की ओर े / Appellant by : Shri Mukesh A. Advani, AR प्रत्यथी की ओर े / Respondent by : Shri Satischandra Rajore, DR ुनवाई की तारीख / Date of hearing: 04.02.2019 घोषणा की तारीख / Date of pronouncement : 04.02.2019 AadoSa / O R D E R महावीर स िंह, न्याययक दस्य/ PER MAHAVIR SINGH, JM:
This appeal by the assessee is arising out of the order of Commissioner of Income Tax (Appeals)-36, Mumbai [in short CIT(A)], in appeal No. CIT(A)-36/IT-548/ITO-24(1)(5)/2015-16 vide dated 27.02.2018. The Assessment was framed by the Income Tax Officer, Ward-24(1)(5) Mumbai (in short ‘ITO/ AO’) for the A.Y. 2011-12 vide dated 11.03.2016 2 under section 143(3) read with section 147 of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The only issue in this appeal of assessee is against the order of CIT(A) directing the AO to restrict the addition made by AO by estimating profit percentage at the rate of 12.5 % on bogus purchases.
Briefly stated facts are that the assessee engaged in the business of manufacturing various precession items and sell it to Larsen & Turbo Ltd. 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 Rs. 15,00,023/- as admitted by these hawala dealers in their deposition before the authorities. The same reads as under: - “Sl. Name of party Amount No. 1. Bhagwati Trading Company 1,38,528 2 Vitrag Trading Co 4,66,024 3. Sampark Steels 4,08,148 4. Prayan Trading Company 4,87,323 Total 15,00,023 4. The AO issued noticed under section 133(6) to the parties which returned unserved by postal authorities and assessee failed to produce these parties. 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 25% of ₹ 3,75,006/- to the 3 returned income of the assessee. Aggrieved, assessee preferred the appeal before CIT(A), who restricted the disallowance at 12.5% of the bogus purchases by observing in para 4.14 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: -
4.14 Thus, after a study of different case while keeping in mind the totality of circumstances as discussed above it is observed that the AO issued notices under section 133(6) of the Income Tax Act, 1961 which were returned un- served by the postal authorities established his suspicious that the said purchases are bogus. Also the AO was of the view that the genuineness of the purchase transactions from the accommodation bill providers was not verifiable. On the other had the appellant has brought on record documentary evidences to establish the genuineness of the said purchase transactions. There is nothing to show that without making the purchases it was possible for the appellant to complete the sales declared in the return of income which is accepted by the AO in the Assessment order. On the other hand, the appellant has failed to establish beyond doubt and has note able to substantiate the transaction with the sellers by producing them or even in the very least obtain a reply confirmation to notice under section 133(6) & thus putting a question mark on the genuineness of the purchase. Therefore, it would be adequate to 4 meet the ends of justice, if the disallowance is to be restricted to 12.5 percent of the bogus purchases of ₹ 15,00,023/- which amounts to ₹ 1,87,502/-, of the bogus purchases. the AO, is therefore, directed to restrict the disallowance as above. Hence, the ground is treated as disposed off.
I have considered the issue and gone through the facts and circumstances of the case. I 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 12.5%, which according to me is on higher side going by the nature of business of the assessee i.e. ferrous and Non-ferrous. I am in full agreement with the contentions raised by the assessee before CIT(A) and according to me a profit rate of 12.5% is on higher side as assessee has also paid the VAT element on these bogus purchases and moreover the assessee is dealing in the items relating to ferrous and Non-ferrous, hence, a further deduction in estimation of profit to the extent of 7.5% can be allowed. Hence, I direct the AO to recompute the income after applying profit rate at the rate of 5% and compute the income accordingly. The appeal of the assessee is partly allowed.
In the result, the appeal of assessee is partly allowed.
Order pronounced in the open court on 04.02.2019. AadoSa kI GaaoYaNaa Kulao mao idnaMk 04.02.2019 kao kI ga[- . (महावीर स िंह /MAHAVIR SINGH) (न्याययक दस्य/ JUDICIAL MEMBER) मुिंबई, ददनािंक/ Mumbai, Dated: 04.02.2019. सुदीप सरकार, व.निजी सचिव / Sudip Sarkar, Sr.PS