MR.GIRISH H. JAIN,MUMBAI vs. ITO WARD-19(1)(3), MUMBAI

The only issue on merits, in these appeals of assessee is against the order of CIT(A) confirming the addition of the AO in estimating the profit rate at 12.5% of the bogus purchases. The facts and circumstances are exactly identical in both the AYs i.e. AY 2009-10 & 2010-11. Hence, we take the facts from AY 2009-10 in and will decide the issue.

Briefly stated facts are that the assessee engaged in dealing steel rods, Pipes, circle, ring and plates. 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.58,73,038/- as admitted by these hawala dealers in their deposition before the authorities. The same reads as under: - S.No. Name of the seller Amount 1. Manish Industrial 6,64,560/- Corporation 2. Dhanera Metal 21,40,037/- Corporation 3. Manibhadra Metal 1,38,136/- Industries 3 | P a g e & 1405/MUM/2018 4. Mico Steels 8,91,508/- 5. R.K. Metal 18,42,983/- 6. Bhora Metal Industries 1,95,814/- Total 57,73,038/- 4. According to information received the name of these parties were appearing in the list of hawala entry operators as supplied by sales Tax Department of Maharashtra. The hawala traders admitting before the sales tax authorities in their deposition that they were providing only accommodation purchase bills on commission basis without being actual purchase/ sale of goods. The AO during the course of scrutiny assessment proceedings required the assessee to file the details of purchase. The assessee filed copies of purchase bills from the above said parties, copies of ledger extract and copies of bank statements to prove the payments by cheque. The AO required the assessee to produce these parties for verification but assessee expressed his inability to do so. 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.7,34,130/- to the return income of the assessee. Aggrieved, assessee preferred the appeal before CIT(A), who sustained the disallowance 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 in para 6.6 as under: - “6.6 Even if materials have been purchased, they are not purchased from these parties and may be in cash from un-disclosed parties. By purchasing from the grey market, the appellant 4 | P a g e ITA No.1404 & 1405/MUM/2018 would have benefitted by the savings of taxes. Therefore, in fact and circumstances of the case, in this particulars case, it is considered most appropriate to adopt 12.5% profit which can take care of the rotation of capital utilised for such transaction. Hence, in the light of finding of the Hon’ble Gujarat High Court in the case of CIT vs. Simit P. Sheth, 12.5% profit is found to be appropriated for ascertainment of taxable income related to such traction. This is exactly what the assessing officer has done. Thus the grounds of appeal are dismissed.”