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Income Tax Appellate Tribunal, MUMBAI BENCHES “C”, MUMBAI
Before: Shri Rajesh Kumar & Shri Ram Lal Negi
O R D E R
Per Rajesh Kumar, Accountant Member
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:
1. The Ld. CIT(A) erred in confirming addition made by A.O of Rs. 1,92,36,052/- being 12.5% of alleged non-genuine purchase from Lakhan Traders Pvt.Ltd. of Rs. 15,38,88,418/- without appreciating that said purchases are genuine, payments were made through banking channels, assessee had produced invoices and delivery challans and Precision Containeurs Ltd. also filed quantitative tally and hence, the addition of Rs. 1,92,36,052/- ought to be deleted.
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.
3. Without prejudice to above, the A.O. & CIT(A) erred in not adjusting the GP already declared on alleged non-genuine purchase against estimate of GP of 12.5% on alleged non-genuine purchase.
4. The Appellant craves leave to add, amend, alter or delete any or all the above grounds of appeal
2. The only issue raised by the assessee in the various grounds of appeal is against the confirmation of addition of Rs. 1,92,36,052/- by CIT (A) upholding the order of the AO in which addition at the rate of 12.5% of the alleged non-genuine purchases from Lakhani Traders Pvt.Ltd. of Rs. 15,38,88,418/- is made. The issue raised in the ground no.2 is without prejudice to ground no.1 wherein the assessee has challenged the addition as being excessive and higher and not allowing adjustment of GP already declared on the said purchases.
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.
Precision Containeurs Ltd. 3,50,00,000/- crores. The assessee filed delivery challans, bills ,vouchers , sale invoices corresponding to the said purchases sales ledgers reflecting the realisation of proceeds, copies of the bank statement reflecting the payments and receipt of sale proceeds and also record reflecting the movement of stocks. It was also submitted during the assessment proceedings that item purchased from Lakhan Traders Pvt.Ltd. as alleged hawala purchases were sold to Akruti Metal & Alloys Pvt.Ltd. and Delite Tubes & Alloys Pvt.Ltd.. The AO was not convinced with reply of the assessee and applied GP of 12.5% by treating the purchases as bogus by framing assessment u/s 143(3) r.w.s 147 of the Act vide order dated 14/03/2016.
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.
Order pronounced in the open court on this day of 04.04. 2019