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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SRI MAHAVIR SINGH
Aayakr ApIlaIya AiQakrNa “SMC” nyaayapIz maMuba[- mao. IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, MUMBAI श्री महावीर स िंह, न्याययक दस्य के मक्ष । BEFORE SRI MAHAVIR SINGH, JUDICIAL MEMBER Aayakr ApIla saM./ (inaQa-arNa baYa- / Assessment Year 2010-11) Aayakr ApIla saM./ (inaQa-arNa baYa- / Assessment Year 2011-12) V.K. Trading Co. The Income Tax Officer ¼, Om Trimurti CHS, Sion 26(3)(4), 5th Floor, C-11, Trombay Road, Chunabhatti, Pratyakshkar Bhavan, Vs. Mumbai-400 022 Bandra (E), Mumbai-400 051 .. (p`%yaqaaI- / Respondent) (ApIlaaqaI- / Appellant) स्थायी लेखा िं./PAN No. AAFFV2666L अपीलाथी की ओर े / Appellant by : Shri Ashok J. Patil, AR प्रत्यथी की ओर े / Respondent by : Shri SK Bepari, DR ुनवाई की तारीख / Date of hearing: 24.10.2018 घोषणा की तारीख / Date of pronouncement : 24.10.2018 AadoSa / O R D E R महावीर स िंह, न्याययक दस्य/ PER MAHAVIR SINGH, JM:
These appeals by the assessee are arising out of the orders of Commissioner of Income Tax (Appeals)-38, Mumbai [in short CIT(A)], in appeal nos. CIT(A)-38/IT.522 & 523/ITO-26(3)(4)/2015-16 vide dated 13.10.2017. The Assessments were framed by the Income Tax Officer, Ward 26(3)(4), Mumbai (in short ‘ITO/ AO’) for the A.Ys. 2010-11 & 2011- 12 vide even date 25.01.2016 under section 143(3) read with section 147 of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The only common issue in these appeals of assessee is against the orders of CIT(A) confirming the disallowance made by AO off non-genuine and bogus purchases. For this assessee has raised identically worded grounds in both the years except the quantum. The facts and circumstances are exactly identical in both the years and hence, we will take the facts from AY 2010-11 and will decide the issue. The grounds raised in AY 2010-11 reads as under: -
“1. The Honorable Commissioner of Income Tax Appeals -38 has erred in rejecting the contentions of the appellant and on the facts and circumstances of the case and in law: a) Has erred in upholding the addition made by the learned Income Tax Officer, being disallowing of ₹ 8,10,619/- at 12.5% of purchases from Ronak Overseas of ₹ 64,84,951/- on account of alleged bogus purchases based on the information received in respect of statement recorded before the Sales Tax Authorities which is without any basis and added the same to the total income b) Further upholding the addition of 12.5% of the alleged bogus purchases by stating that appellant has definitely inflated expenditure without establishing the nature genuine or otherwise of the purchases, and on the basis of conjecture when as per the cost and profit structure and procedure of trading appellant’s margin is average 9% for the last three years.”
Briefly stated facts are that the assessee engaged in the business trading of lubricating Oils. 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 ₹ 54,84,951/- for AY 2010-11 and ₹ 79,01,207/- for AY 2011-12 as admitted by these hawala dealers in their deposition before the authorities. The same reads as under in both the years respectively: -
In AY 2010-11
Name of party Amount Ronak Overseas 64,84,951 In AY 2011-12
Name of party Amount Ronak Overseas 43,97,851 SK Trading Co 28,76,113 Radhika Enterprise 2,09,081 Rohit Trading 4,18,162 Total 79,01,207
The AO issued noticed under section 133(6) to the parties which returned back with the remark as “left” 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 in both the years and accordingly, he made addition of unproved purchases at 12.5 % of ₹ 8,10,619/- for AY 2010-11 and ₹ 9,87,651/- for AY 2011-12 to the return income of the assessee, respectively. Aggrieved, assessee preferred the appeal before CIT(A), who confirmed the addition made by the AO by observing in para 4.2 (xiv to xvi) 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: -
“xiv Thus in view of the above facts and circumstances of the case and the recent judgments quoted as above, it is observed that the likelihood of the purchase price being inflated cannot be ruled out and therefore in view of the above, the AO has not treated the entire purchases from the aforesaid parties to be bogus but held to have been made from the parties other than those mentioned in the books of accounts and that being the position, not the entire purchase price but only the profit element embedded in such purchases has been taxed by the AO @ 12.5%. xv. In the present facts and circumstances of the case, the profit element embedded in the aforesaid bogus purchases @ 12.5% seems to be justified in view of the nature of the business of the appellant which is over & above the profit declared by the appellant & is found commensurate with the judgment in the case of CIT vs. Sink P. Sheth 356 ITR 451 (GuJ.) of Hon'ble Gujrat High Court wherein disallowance on account of bogus purchases was sustained at 12.5% of the alleged bogus purchases. Accordingly, the profit @12.5% on the unexplained purchases of Rs 64,84,951/- worked out at Rs. 8,10,619/- is found to be justifiable and is confirmed to that extent. xvi. Therefore, the above grounds of appeal no. to S raised by the appellant are dismissed.”
5. 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 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 of lubricating Oils. I am in full agreement with the contentions raised by the assessee before CIT(A) and according to me a profit rate of 12.5% is on higher side as assessee has also paid the VAT element on these bogus purchases, a further deduction in estimation of profit to the extent of 4.5% can be allowed. Hence, I direct the AO to recompute the income after applying profit rate at the rate of 8% and compute the income accordingly. The appeal of the assessee is partly allowed.
Similar are the facts in AY 2011-12 and hence, I direct the AO to apply profit rate at the rate of 8% on the bogus purchases.
In the result, both, the appeals of assessee are partly allowed.
Order pronounced in the open court on 24-10-2018. AadoSa kI GaaoYaNaa Kulao mao idnaMk 24-10-2018kao kI ga[- .