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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 2009-10) Shri Bharat Hastimal Shah Income Tax Officer Ward- M/s Neelam Industries, 184, 19(1)(2) Trambak Parashuram Street, Matru Mandir, Nana Chowk Vs. 6th Kumbharwada, Mumbai- Mumbai-400 007 400 004 .. (p`%yaqaaI- / Respondent) (ApIlaaqaI- / Appellant) स्थायी लेखा िं./PAN No. ALJPS1354H अपीलाथी की ओर े / Appellant by : Shri Vimal Punmiya, AR प्रत्यथी की ओर े / Respondent by : Shri SK Bepari, DR ुनवाई की तारीख / Date of hearing: 22.10.2018 घोषणा की तारीख / Date of pronouncement : 22.10.2018 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)-30, Mumbai [in short CIT(A)], in appeal No. CIT(A)-30/19(1)(2)/171/2015-16 vide order dated 02.01.2018. The Assessment was framed by the Income Tax Officer, Ward-19(1)(2), Mumbai (in short ‘ITO’/ AO’) for the A.Y. 2009-10 vide order dated 27.02.2015 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 estimate of profit percentage at the rate of 6.5 % on bogus purchases. For this assessee has raised following ground No. 1: -
“1. On the facts and circumstances of the case and in law the learned Commissioner of Income Tax (Appeal) erred in (a) Confirming addition of Rs. 630380/- to the total income of the appellant by estimating profit element @ 6.5% on alleged bogus purchase of ₹ 9698146/-.
(b) estimating rate of profit at 6.5% on alleged bogus purchases over and above gross profit declared of 4.48% by the appellant on such purchases.”
Briefly stated facts are that the assessee engaged in the business of reseller of ferrous and Non 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. 96,98,146/- as admitted by these hawala dealers in their deposition before the authorities. The same reads as under: -
Name of party Amount Siddhivinakyak Pipe & Fittings ₹ 86,290/- Nayan Steel Centre ₹ 11,79,790/- Rajendra Impex India 16,53,698/- Titanic Metal Corporation ₹ 24,41,279/- Newzone Multitrade Pvt. Ltd. ₹43,37,089/-
Total ₹96,98,146/- 4. The AO issued noticed under section 143(2) and 143(1) with questionnaire were issued. During the course of assessment proceedings and during appellate proceedings, the assessee submit documents in respect of 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 profit rate @ 12.5% of unproved purchase at Rs.12,12,268/- to the return income of the assessee. Aggrieved, assessee preferred the appeal before CIT(A), who restricted the disallowance at 6.5% of the bogus purchases by observing in para 6.11 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: -
“6.11 The appellant made purchases from seven parties who are said to be hawala operators, who is indulged in providing bogus bills without supply of any material. Independent inquiries conducted revealed that no such party is existing in the given address. When asked to produce the party during the assessment proceedings by the AO, appellant expressed his inability to do so. In the present case, A.O. estimated the profit percentage on bogus purchases as 12.5%. The simple issue to be decided is whether the percentage adopted by the AO is correct in the line of business i.e. trading in ferrous arid non- ferrous metals. As noticed above, in the similar circumstances of bogus purchases, Hon'ble Gujarat High Court estimated the additional advantage towards tax benefit (10% and the profit margin (2.5%) totaling to 12.5%. In the present case on perusal of copies of the invoices furnished by the appellant in the bill the percentage of VAT levied is © 4%. Applying the same logic, the profit margin should be adopted @ 2.5%. In view of the above, in my considered opinion, applying the logic of the above said case the profit percentage embedded on such purchases is restricted to 6.5% (i.e. 4% of VAT levied + 2.5% towards profit margin), that will meet the ends of the justice. Taking all the facts into consideration and applying the logic of Simit P. Sheth case, the A.O. is directed to restrict the estimation © 6.5% on the non-genuine purchases of Rs. 96,98,146/-. Appeal on Ground No. 1 is treated as 'Partly Allowed'.”
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 6.5%, which according to me is on higher side going by the nature of business of the assessee i.e. ferrous and Non Ferrous metals. I am in full agreement with the argument of the learned Counsel for the assessee and according to me a profit rate of 6.5% 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 1.5% can be allowed. 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 22-10-2018. AadoSa kI GaaoYaNaa Kulao mao idnaMk 22-10-2018 kao kI ga[- .