PRECISION CONTANEURS LTD,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX 13(1)(2), MUMBAI

The Assesseeby way of this appeal is challenging the order dated 27/06/2017 of the Ld. Commissioner of Income-Tax (Appeals)-21 {hereinafter called CIT(A)}, Mumbai, in Appeal No.CIT(A)-21/DCIT-13(1)(2)/IT-465/2015-16.The assessment for impugned AY was framed by Ld. Deputy Commissioner of Income Tax-13(1)(2), Mumbai [AO] u/s 143(3)r.w.s. 147 of the Income Tax Act,1961 on 14/03/2016.The grounds raised by the assessee are as under:

Without prejudice to above, the addition sustained by the A.O. and CIT(A) is on a very higher side and same may be reduced.

The facts in brief are that the assessee is engaged in the manufacturing of Steel Drums. During the year the assesse filed return of income on 03/09/2008 declaring a loss of Rs. 15,77,23,191/- which was processed u/s 143(1) of the Act . Thereafter the assessment of the assessee was reopened by issuing notice u/s 148 of the Act on 31/03/2015 after the AO received information DDIT(Inv), Mumbai that the assessee is beneficiary of bogus purchases to the tune of Rs. 3,50,00,000/- made from Lakhan Traders Pvt.Ltd. The AO issued show cause notice to the assessee as to why the purchases should not be disallowed for being bogus. The assessee during the assessment proceedings submitted before the AO that the total purchases made from the said party were Rs. 15,38,88,418/- and not Rs.

In the appellate proceedings the Ld. CIT(A) upheld the order of AO by following decisions of various coordinate benches including the Ahmedabad Bench in the case of Vijay proteins Ltd vs ACIT (1996) 58 ITD 428 (Ahd), CIT vs. Bolanath Ply Fab P. Ltd. (2013) 355 ITR 290(Guj) and thus justified the addition at the rate of 12.5% on the ground that the AO has only added profit embedded in the said bogus purchases and not added the entire bogus purchases.

After hearing both the parties and perused the material available on record, we observed that the assessee is manufacturing Steel drums. The undisputed facts are that the assessee has made bogus purchases to the tune of Rs. 15,38,88,418/- from Lakhan Traders Pvt.Ltd which is a hawala party. The assessee has filed during the assessment proceedings the purchase bills, names and addresses to the materials were sold, receipt of sales proceeds and payment proofs etc. The applicable VAT to the assessee is 4%. Under these circunstances, the presumption is that the assessee might have taken the bogus bills from Lakhan Traders pvt.ltd whereas the actual purchases might have been made from grey market as sale was not in dispute. The purpose to apply GP on the bogus purchases is that the assessee might have made some savings by way of non payment of VAT and other levies which have to be brought to tax. The assessee has relied on a couple of decisions wherein the additions were directed to be made at 2% of the bogus purchases. However in the present case the VAT rate is 4% and the addition has to be made at a rate made up of VAT plus reasonable profit. In our view it would be reasonable if the GP 5% is applied to the bogus purchases. The AO is directed accordingly.

In the result, the appeal of the assessee is partly allowed.