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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SRI MAHAVIR SINGH
Mr. Kokilkumar M. Siyal The Income Tax Officer Prop. M/s Laxmi Metal 18(2)(1), 304, 3 rd Floor, Trading, 57-A, Shop No. 4, Earnest House, Nariman Vs. Kedia House, Madhav Lane, Point, Mumbai-400 021 Mumbai-400 002 .. (p`%yaqaaI- / Respondent) (ApIlaaqaI- / Appellant) स्थायी लेखा िं./PAN No. AABPJ5366P अपीलाथी की ओर े / Appellant by : Shri Nimesh Chothani, 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:
These appeals by the assessee are arising out of the orders of Commissioner of Income Tax (Appeals)-29, Mumbai [in short CIT(A)], in appeal No. CIT(A)-29/IT-154 & 155/ITO-18(2)(1)/16-17 vide even date 2 08.02.2018. The Assessments were framed by the Income Tax Officer, Ward-18(2)(1) Mumbai (in short ‘ITO/ AO’) for the A.Ys. 2010-11 & 2011- 12 vide dated 26.02.2016 & 29.02.2016 under section 143(3) read with section 147 of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The only common issue in these appeals of assessee is against the order of CIT(A) confirming the addition made by AO applying the profit rate at 12.5% of the bogus purchase. For this assessee has raised identically worded grounds in both the years except the quantum. The facts and circumstances are exactly identical in both the years and hence, I will take the facts from AY 2010-11 and will decide the issue.
Briefly stated facts are that the assessee engaged in the business of dealer in ferrous and non-ferrous metals. 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. 54,15,716/- for AY 2010-11 & ₹ 1,18,27,028 for AY 2011-12 as admitted by these hawala dealers in their deposition before the authorities. The same reads as under: - 2010-11 Name of party Amount Ramex Tradex Impex Pvt. Ltd 1484870 Nikoo Trade Link Pvt. Ltd 1082162 Bhairav Enterprises 264264 Ujwal Enterprises 415214 Master Trading Co. 340990 Bostam Enterprises 1828216 2011-12 Name of party Amount Gold Star Trading Co. 12,72,427 3 Jagdish Metal Deprt 2,88,583 Big Trade Agency 32,15,128 Navkar Corporation 6,45,128 Bostam Enterpirses 46,63,411 Nisha Enterpiese 17,42,351 4. The AO issued noticed under section 133(6) to the parties which returned unserved 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 12.5% of ₹ 6,76,965/- for AY 2010-11 & ₹ 14,78,379/- for AY 2011-12 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 paras 4.3 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: - “4.3 The submissions and case laws relied by the Ld. counsel for the appellant have been carefully considered. When the expenditure has been claimed by the assessee, the onus is on the assessee to prove the genuineness of the same. As it is the claim of the assessee that he has made purchases from the said parties, the AO had requested the assessee to produce the parties for verification. However, the assessee failed to do so. As the parties from whom the purchases were supposed to have been made were not found existing, the genuineness of the 4 purchases from such non existing parties was not established.
4.3.1. Coming to the addition, the Hon'ble ITAT, Ahmedabad 'C' Bench in the case of Vijay Proteins Ltd. vs. ACIT 58 lTD 0428 held that in similar circumstances, 25% of the purchase price accounted through fictitious invoices has to be disallowed. The Hon'ble High Court of Gujarat in the case of Sanjay Oil cakes v/s CIT 316 ITR 0274 dealt with similar case where some of the alleged suppliers who had issued bills to the assessee were not genuine as they were not traceable. The goods must have been received from other parties. The likelihood of the purchase price of these alleged purchases being inflated could not be ruled out and therefore the Hon’ble High Court has upheld the decision of CIT(A) and the ITAT disallowing 25% of the payments made to such parties. The Hon'ble High Court of Gujarat in the case of CIT vs. Simit P. Sheth 356 ITR 0451 held that once the sale is accepted by the AO, the very basis of purchases could not be questioned. Not the entire purchase price could be disallowed but only the profit element embedded in such purchases could be added to the income of the assessee. The estimation varies with the nature of business and no uniform yardstick could be adopted. Given the facts and circumstances of the instant case, I find it 5 reasonable to estimate the gross profit on the alleged bogus purchases at 12.5%.
4.3.2. The action of the AO in making an addition of 12.5% of the alleged bogus purchases is confirmed. This ground of appeal is dismissed.”
5. 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, 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.
Similar are the facts in AY 2011-12 and hence, I direct the AO to apply profit rate at the rate of 5% on the bogus purchases.
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