PAWANRAJ N SHAH,MUMBAI vs. INCOME TAX OFFICER, WARD 19(2)(5), MUMBAI

The only issue in this appeal of assessee is against the order of CIT(A) confirming the addition made by AO by applying the profit rate at 12.5% of the bogus purchase.

Briefly stated facts are that the assessee engaged in the business of trading in Metals under the name and style of M/s P Kantilal & Co. 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. 1,82,28,510/- as admitted by these hawala dealers in their deposition before the authorities. The same reads as under: - Name of party Amount Harshil Feromet Pvt. Ltd 7,13,024 RJ Metal Industries 41,88,232 Triveni Metal India 27,38,168 Mumbai Metal corporation 1,79,088 Veer Industries 3,72,819 Manibhadra Metal Industries 1,82,450 Vijay Industries 9,86,532 Hans enterprises 1,69,728 Unicorn Metal Industries 6,20,577 Tyson steel and tubes Pvt. Ltd. 3,33,466 Ramani Metal corporation 45,19,195 Kanak Steel (India) 3,57,661 Wel Steel (India) 3,66,257 Bhora Metal Industries 4,24,893 Siddharth Steel corporation 5,71,411 New era enterprises 1,47,284 Rishab enterprises 2,00,304 Ronak Industries 15,616 Om shanti trading co 1,84,637 Padmavati trading co 1,97,590 Parasvnath trading co 3,50,139 Rajratan metal industries 4,09,439 ITAs No. 6632/Mum/2017 Total 1,82,28,510 4. 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 ₹ 22,78,563 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 para 6 & 7 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: - “6. The brief facts are that the appellant has filed his return of Income for the A.Y.2010-11 on 16.09.2010 declaring total income of Rs.4,59,730/-. Subsequently, the AO received information from the sates tax department through the DGIT(Inv.), Mumbai that the appellant had procured bogus purchase bills totaling to Rs.1,82,28,510/- from 22 parties. The AO issued notice u/s.148 on 31.10.2015. Subsequently, notices u/s.143(2) and 142(1) were issued alongwith questionnaire. In response to the notices, details called for were submitted. The appellant is a firm engaged in the business of trading in metals. During the course of assessment proceedings, the AC asked the appellant to produce certain documents to prove the genuineness of the ITAs No. 6632/Mum/2017 purchases. It was submitted that barring the ledger account and cheque payments, no other documents such as lorry receipt, transportation details, delivery challans etc. were filed. The AO further held that as the assessee has provided stock statement and entries of these said purchases, the only inevitable conclusion can be drawn is that the assessee has made purchases from the open market from some other parties best known to him. The AC further held that as the purchase rate as mentioned in the suppliers sales invoice cannot be accepted, the books of accounts cannot be held as correct and therefore he rejected the books of account u/s.145(3) and further relying on the judgment of CIT vs. Simit P. Sheth 356 ITR 451 ant MIs. Bholenath Poly Fab P. ltd. proceeded to disallow Rs.22,78,563/- i.e.12.5% of the bogus purchases of Rs.1,82,28,510/- and added the same to tie total income of the appellant. The AO has completed the assessment by determining the total income of the appellant at Rs.27,38,290/- and levied tax of Rs.12,03,030/- on the appellant. The present appeal is filed against the said assessment order.

As stated earlier, in the present case, the appellant did not attend the hearing even once nor filed any letter for adjournment. Once proceedings u/s 143(3) r.w.s 147 of the Act were initiated on the appellant, it would be 5 ITAs No. 6632/Mum/2017 expected that the appeal would be duly pursued. However, in the instant case, the appellant has taken a lackadaisical approach with regard to the appellate proceedings. In view of these facts, the disallowance made by the assessing officer are upheld and the grounds raised by the appellant are dismissed.”

We have considered the issue and gone through the facts and circumstances of the case. We find from the facts of the case and argument of both the sides, that the CIT(A) has applied 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. trading in metals. We are in full agreement with the argument of the learned Counsel for the assessee and according to us a profit rate of 12.5% will meet the end of justice in view of the decision of Hon’ble Gujarat High Court in the case of CIT vs. Smith P. Seth (2013) 356 ITR 451 (Guj) but 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, we 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.