PRAVIN D. JAIN,MUMBAI vs. ITO 14(3)(4), MUMBAI

The above titled 5 appeals by two different assessees and two by the Revenue have been preferred by the assessee against the order dated 23.09.2016 & 30.09.2016 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2008-09, 2009-10, 2010-11 & 2011-12 respectively.

The assessee has raised 11 grounds in the memorandum of appeal. During the hearing the assessee pressed only ground no.

The facts in brief are that the survey was conducted on the assessee on 05.12.2012 at the office and ground premises of the assessee. Thereafter, the case of the assessee was reopened under section 147 by issuing notice under section 148 on 17.12.2012 wherein the AO has recorded reasons to believe that on the basis of information received from Sales Tax Department that the assessee was involved in hawala transactions of bogus purchase of goods from three parties namely M/s. Tej Corporation, M/s. Mayur Enterprises & M/s. Hari Om Traders of Rs.3,62,94,099/- and consequently a survey was conducted on the assessee and thus came to the belief that income has escaped assessment exceeding Rs.1,00,000/-. During the course of assessment proceedings, assessee was given various opportunities which were not complied with. The AO also in order to verify the purchases issued notices under section 133(6) of the Act which were duly served upon the suppliers. However, no response was received from any of the parties and AO on the basis of information gathered during the survey came to the conclusion that assessee has made bogus purchases from two parties M/s. Hari Om Traders and M/s. Mayur Enterprises from whom the purchases were made during the year. The AO calculated the peak of purchases from these two parties and assessed the same to the income of the assessee as unexplained expenditure under section 69 of the Act by framing assessment

In the appellate proceedings, the Ld. CIT(A) partly allowed the appeal of the assessee by sustaining the addition to the extent of 12.5% of the bogus purchases which comes to Rs.12,91,295/- by following the decision of Hon’ble Gujarat High Court in the case of CIT vs. Hon’ble Gujarat High Court in the case of CIT vs. Simit P. Sheth 38 taxman 385 (Guj). While coming to this conclusion the Ld. CIT(A) considered the fact that the notices issued u/s 133(6) of the Act were duly served upon the parties and the partiers have not responded the notices. The assessee also filed the necessary evidences before the Ld. CIT(A) in the form of ledger confirmation, purchase invoices, stock register maintained and payments through banking channels etc. So the ld CIT(A) concluded that only income on the said purchases could be brought to tax and not the entire purchases.

After hearing both the parties and perusing the material on record, we observe that indisputably, the assessee was found to be beneficial of hawala purchase transactions from two parties i.e. M/s. Hari Om Traders and M/s. Mayur Enterprises. The AO made the addition in the ex-parte assessment equal to Rs.1,03,30,361/- by taking the peak of the purchases from both the parties. The Ld. CIT(A) reduced the addition to 12.5% of the bogus purchases on the ground that it is only the income which is to be assessed in such a case and entire purchases could not 4 7168 & 7169/M/2016 Shri Pravin D. Jain be added to the income of the assessee. In this case, we note that the assessee is a trader in ferrous and non ferrous metals. The assessee has not admitted the said purchases to be bogus before the VAT authorities and has challenged the additions before the VAT appellate authority. The rate of GP declared by the assessee during the year is 1.29% and after this addition sustained by Ld. CIT(A), the GP comes to 14.15% which is highly unrealistic and imaginary in the case of trading in ferrous and non ferrous metal items. The assessee is a small trader and it was also pleaded during the course of hearing that the accounts of the assessee with the banks have become NPA due to the action of the authorities despite no evasion of tax by resorting to these bogus purchases as assessee has duly paid all the taxes by declaring the said purchases in the books of accounts. We find that in such type of cases the Ld. CIT(A) is correct in coming to the conclusion that purchases might have been made from the grey market but not with the rate at which the income of the assessee on bogus purchases was brought to tax. The co- ordinate benches of the Tribunal have been taking a consistent view of making reasonable addition depending on the facts of each case. In the case of Shri Bipin Umakant Joshi Vs ITO ITA No. 5794/Mum/2017 order dated 19.2.2018, ACIT Vs. M/S Stell Line (India) ITA No. 1321/Mum/2016 and others order dated 29.8.2017 and M/S Innovators Façade System Pvt Ltd. Vs ACIT ITA No. 5450/Mum/2015 and others order dated 20.07.2016, the coordinate benches have directed the addition to be made at 2%. In this case the assessee is trading in ferrous and non ferrous metal and therefore the addition as sustained by Ld. CIT(A) of 12.5% of bogus purchases is quite high and can ITA No. 7168/Mum/2016 A.Y. 2009-10.

During the hearing of the appeal, the AR only pressed ground no. 4 and 6. Therefore all other grounds are dismissed as not pressed.

The issue in ground no. 4 in this appeal is identical to one as decided by us on ground no.5 in AO to make addition at 2% of the bogus purchases. Therefore our decision on no. 5 in would, mutatis mutandis, apply to ground as well. Accordingly the AO is directed to make addition at 2% of the bogus purchases.

The issue in ground no,6 is against the confirmation of addition of Rs. 6,62,958/- to the income of the assessee upholding the order of AO on this issue.

The facts in brief are that the during the course of survey on 5.12.2012, the survey team found a profit and loss account as on 31.3.2009 wherein the net profit was more to the tune of Rs. 6,62,958 as compared to the audited profit and loss for the said year filed before the revenue authorities. So the AO considered the net profit as per the profit and loss account seized during the survey which resulted into addition of Rs.6,62,958/- to the income of the assessee.

We have heard the rival contentions of the parties and perused the materials on records. In this case the assessee candidly admitted that though the draft profit and loss account found during survey showed net profit of Rs.15,94,053/- whereas the net profits as per audited profit and loss account were Rs.9,31,095/-. The ld AR submitted that when the audit was done the audit team found some mistakes in the books of accounts which were rectified. It is only for that reason that there is difference between the two figures. We observe from the records before us that there were some genuine mistakes which were corrected. Moreover even if we go by the theory of the revenue authorities, the net profit would be unrealistic as the margin in the assessee trade is very thin. So taking into account the facts of the case in totality we are not in agreement with the conclusions ld CIT(A). Moreover the account of the assessee were subjected to audit and certified. Accordingly, we direct the AO to delete the addition of Rs.6,62,958/-. A.Y. 2010-11 12. During the hearing of the appeal, the AR only pressed ground no. 4. Therefore all other grounds are dismissed as not pressed.

The issue in ground no. 4 in this appeal is identical to one as decided by us on ground no.5 in AO to make addition at 2% of the 7 7168 & 7169/M/2016 Shri Pravin D. Jain bogus purchases. Therefore our decision on no. 5 in would, mutatis mutandis, apply to ground as well. Accordingly the AO is directed to make addition at 2% of the bogus purchases.

In the result, the appeals of the assessee are partly allowed.