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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) Datta Digambar Automobiles The Income Tax Officer ¼, Om Trimrti CHS, Sion 26(1)(3), Room No. 705, C- Vs. Trombay Road, Chunbhatti, 11, Pratyakshkar Bhavan, Mumbai-400 022 BKC, Mumbai .. (p`%yaqaaI- / Respondent) (ApIlaaqaI- / Appellant) स्थायी लेखा िं./PAN No. AADFD3745J 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:
This appeal by the assessee is arising out of the order of Commissioner of Income Tax (Appeals)-38, Mumbai [in short CIT(A)], in appeal No. CIT(A)-38/ITO-26(1)(3)/IT.540/2015-16 vide dated 14.10.2017. The Assessment was framed by the Income Tax Officer, Ward 26(1)(3), Mumbai (in short ‘ITO/ AO’) for the A.Y. 2010-11 vide dated 29.01.2016 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The only issue in this appeal of assessee is against the order of CIT(A) confirming the addition made by AO applying the profit rate at 12.5% of the bogus purchase. For this assessee has raised following ground: -
“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 disallowance of ₹ 76,098/- at 12.5% of purchases from Ronak Overseas of ₹ 6,08,782/- by holding these as allegedly non genuine/ 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 without establishing the nature genuine or otherwise of the purchases, and on the basis of addition made in the other cases and case laws pertaining to other goods where method of trading is different and margin is much higher and confirmed by the higher authority, which relates to being completely different lines of business, having different cost and profit structure and different procedure of trading & hence a different margins. c) The addition is further made without appreciating the fat that 5.22% margin has already been included in the return income and thus in effect the estimation of margin is 17.22% and not 12.5% as made by the assessing officer which thus by his own logic is also incorrect.”
Briefly stated facts are that the assessee is authorized dealer in petrol & Diesel and Industrial Oils, Lubricants, Greases and other auxiliary items. 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. 6,08,782/- as admitted by these hawala dealers in their deposition before the authorities. The same reads as under: -
Name of party Amount Ronak Overseas 6,08,782 4. The AO issued noticed under section 133(6) to the parties which was not served 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 ₹ 76,098/- 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 5.3 (xvi to xvii) 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: -
“5.3 xvi. 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 AC 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 to embedded in such purchases has been taxed by the AO @ 12.5%. xvii. 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. Simit 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.6,08,782/-, worked out at Rs.76,098/- is found to be justifiable and is confirmed to that extent.”
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. authorized dealer in petrol & Diesel and Industrial Oils, Lubricants, Greases and other auxiliary items. 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.
In the result, the appeal of assessee is partly allowed.
Order pronounced in the open court on 24-10-2018. AadoSa kI GaaoYaNaa Kulao mao idnaMk 24-10-2018kao kI ga[- .