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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SRI MAHAVIR SINGH
Aayakr ApIla saM./ (inaQa-arNa baYa- / Assessment Year 2010-11) Shri Tejraj Manroop Chand The Income Tax Officer, Tak Ward 18(3)(4), Bandra 1 st 234-B, Agarwal Bldg, Kurla Complex, Bandra Vs. Floor, Room No. 6-7, East, Mumbai, Maharashtra- Thakurdwar Road, Mumbai- 400 051 400 002 .. (p`%yaqaaI- / Respondent) (ApIlaaqaI- / Appellant) स्थायी लेखा िं./PAN No. ADQPT2755C अपीलाथी की ओर े / Appellant by : Shri Bharat Kumar, AR प्रत्यथी की ओर े / Respondent by : Shri BS Bist, DR ुनवाई की तारीख / Date of hearing: 01.11.2018 घोषणा की तारीख / Date of pronouncement : 01.11.2018 AadoSa / O R D E R महावीर स िंह, न्याययक दस्य/ PER MAHAVIR SINGH, JM:
This appeal by the assessee is arising out of the order of Commissioner of Income Tax (Appeals)-29, Mumbai [in short CIT(A)], in appeal No. CIT(A)-29/IT-379/ITO-18(3)(4)/15-16 vide dated 26.12.2016. The Assessment was framed by the Income Tax Officer, Ward 18(3)(4)
Mumbai (in short ‘ITO/ AO’) for the A.Y. 2010-11 vide dated 17.12.2015 under section 143(3) read with section 147 of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The only issue in this appeal of assessee is against the order of CIT(A) directing the AO to restrict the addition made by AO being estimating profit percentage at the rate of 9.93 % on bogus purchases. For this assessee has raised following ground: -
“1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming addition of ₹ 16,34,076/- on account of alleged purchases i.e. 9.93% of alleged bogus purchases.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming interest charged under section 234A, 234B and 234C.”
Briefly stated facts are that the assessee engaged in the business of trading in 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. 1,64,56,221/- as admitted by these hawala dealers in their deposition before the authorities. The same reads as under: -
“Sl. Name of party Amount No. 1. Navjyoti Metal Industries 9,36,972
2. Arihant Trading Co. 5,05,871 3. Om Shanti Trading Co. 42,00,715/- 4. Parasnath Trading Co. 46,63,227 5. Vasant Impex Pvt. Ltd. 61,49,426 Total 1,64,56,221 4. The AO issued noticed under section 133(6) to the parties which returned unserved with remark as “not known” 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 ₹ 20,57,179/- to the returned income of the assessee. Aggrieved, assessee preferred the appeal before CIT(A), who restricted the disallowance at 12.5% of the bogus purchases by observing in paras 4.3.2 & 4.3.3 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: -
“4.3.2. 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 ITS 0451 held that once the sale is accepted by the AD, 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 he 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 reasonable to estimate the gross profit on the alleged bogus purchases at 12.5%.
4.3.3 The action of the AO in estimating the GP on alleged bogus purchases @12.5% is upheld. However, the AO is directed to reduce the GP already shown by the appellant on these purchases from the estimated 12.5%. This ground of appeal is therefore partly allowed.”
However, I find that the CIT(A) has directed the AO to reduced its GP already declared GP on these bogus purchases from the estimated GP added by the AO of 12.5%. Aggrieved, assessee preferred second appeal before Tribunal.
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 12.5% to the returned income of the assessee but directed the AO to reduce the already declared GP on these bogus purchases. According to me, this estimation by the AO and CIT(A) at the rate of 12.5% is on higher side going by the nature of business of the assessee i.e. trading in Ferrous and non-ferrous metal. 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.
In the result, the appeal of assessee is partly allowed.
Order pronounced in the open court on 01-11-2018. AadoSa kI GaaoYaNaa Kulao mao idnaMk 01-11-2018kao kI ga[- .