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Income Tax Appellate Tribunal, MUMBAI BENCHES “SMC”, MUMBAI
Before: SHRI R.C. SHARMA (AM) & SHRI RAM LAL NEGI (JM)
O R D E R
PER RAM LAL NEGI, JM
This appeal has been filed by the assessee against the order dated 02.01.2018 passed by the Commissioner of Income Tax (Appeals) (for short ‘the CIT (A)’)-30, Mumbai, for the assessment year 2009-10, whereby the Ld. CIT (A) has partly allowed the appeal filed by the assessee against assessment order passed u/s 143 (3) read with section 147 of the Income Tax Act, 1961 (for short ‘the Act’).
Brief facts of the case are that the assessee, proprietor of M/s Mehta Steel and Engineering Company engaged in the business of trading in ferrous and non ferrous metals, filed its return of income for the assessment year under consideration declaring the total income of Rs. 3,06,664/-. The return was processed u/s 143 (1) of the Act. Subsequently, on the basis of information received from the DGIT (Inv.) Wing, Mumbai to the effect that the assessee during the previous year obtained bogus bills from fifteen bogus parties (mentioned in the assessment order) amounting to Rs. 1,13,54,105/- in order to inflate the purchases, AO issued notice u/s 148 of the Act and served upon 2 Assessment Year: 2009-10 the assessee. In response to the said notice, the assessee submitted copy of return already filed on 23.09.2009. Thereafter the AO issued notices u/s 143 (2) and 142 (1) of the Act. Accordingly, the authorized representative (AR) attended the proceedings and filed some of the details. Based on the aforesaid information, the AO asked the assessee to furnish further details including books of account, bills and vouchers etc. However, the assessee submitted written reply stating as under: “…to avoid such litigation and buy piece of mind we request to you for addition of gross reasonable Gross Profit.” 3. Accordingly, AO made addition of 12.5% of the total amount of the bogus purchases taking into consideration the profit element involved in the questioned purchases, passed the assessment order u/s 143(3) read with section 147 of the Act and determined the total income of the assessee at Rs. 17,25,927/-. 4. Aggrieved by the assessment order, the assessee challenged the same before the CIT (A). The Ld. CIT (A) after hearing the assessee restricted the addition to 6.5% of the total amount of bogus purchases by applying the ratio law laid down by the Hon’ble Gujarat High Court in the case of CIT vs. Simit P. Sheth 356 ITR 451 (Guj). Still aggrieved, the assessee is in appeal before the Tribunal. 5. The assessee has preferred this appeal by raising the following effective grounds:- 1. On facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeal) erred in (a) confirming addition of the extent of Rs. 738017/- which is made on account of estimation of profit @ 6.5% on alleged bogus purchases of Rs. 11354105/- to the total income of the Appellant.
3 Assessment Year: 2009-10
(b) estimating rate of profit at 6.5% on alleged bogus purchases over and above gross profit declared of4.93% by the appellant on such purchases. 2. On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) failed to appreciate that (a) Proceeding initiated under section 147/148 of the Act is on the basis of reason to suspect and not on reason to believe.
(b) There is no new tangible material in possession of the Assessing Officer which justify issuance of notice u/s 148 of the Act.
(c) The initiation of proceeding under section 147 of the Act and issuance of notice under section 148 is bad in law and contrary to the provisions of the Act and liable to be cancelled/annulled.
On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in confirming order made under section 143 (3) rws 147 of the Act by learned Assessing Officer which is illegal, bad-in-law, ultra vires and without allowing reasonable opportunity of the hearing, without appreciating the facts, submission and evidences in their proper perspective, without providing copies of material used against the appellant and without providing cross examination of parties is liable to be annulled..
The learned assessing officer erred in charging interest under section 234A, 234B, 234C and 234D of the Act.
Before us, the Ld. counsel for the assessee submitted that the Ld. CIT (A) has erred in confirming the order passed u/s 143 read with section 147 of the Act, which has been passed by without giving reasonable opportunity of hearing to the assessee. Further, the assessment was made u/s 147 without 4 Assessment Year: 2009-10 any basis as there was no tangible material before the Assessing Officer for issuing notice u/s 148 of the Act and reopening the assessment. On merits, the Ld. counsel submitted that confirming of addition to the extent of 6.5% is over and above the gross profit declared by the assessee which is 4.93%. Therefore, the impugned order is liable to be set aside. The Ld. counsel relied on the decisions of the Mumbai Bench of the Tribunal rendered in the case of ACIT vs. M/s Steel Line India A.Y. 2009-10, ITA No. 1322/Mum/2016 for the A.Y. 2010-11 and ITA No. 1323/Mum/2016 for the A.Y. 2011-12 and cross appeals by the assessee and in the case of M/s SVPH and Steel Service vs. ITO ITA No. 1177/Mum/2017 A.Y. 2009-10.
On the other hand, the Ld. Departmental Representative (DR) relying on the order passed by the Ld. CIT (A) submitted that since the Ld. CIT (A) has reasonably restricted the addition of 6.5% of the total amount of bogus purchases by applying the decision of Hon’ble Gujarat High Court in the case of Smith P Seth, there is no merit in the appeal of the assessee.
We have heard the rival submissions and also perused the entire material on record. Vide Ground No. 2 and 3, the assessee had challenged the assessment order passed u/s 143 (3) read with section 147 of the Act, on the ground that the same is illegal bad in law and ultra virus as the same was passed by the AO without affording reasonable opportunity of being heard and without appreciating the submission and evidence in their proper perspective and without providing copies of material/ evidence relied upon by the AO. However, we notice that during the appellate proceedings, the AR of the assessee did not press these grounds and accordingly the Ld.CIT (A) dismissed the same being not pressed. Since, the assessee has not pressed the said issue before the Ld. CIT (A), there is no reason to raise these grounds before the Tribunal. Even otherwise, there is no merit in the contention of the assessee as 5 Assessment Year: 2009-10 the assessee has requested AO to make addition of reasonable gross profit. Hence, we dismiss the ground No. 2 and 3 of appeal of the assessee. In so far as the material for issuing notice u/s 148 is concerned, AO has jurisdiction to reassess the return if he has reason to believe that any income chargeable to tax has escaped assessment. In the present case, we are of the considered view that the information received by him was sufficient to form the belief that part of the income chargeable to tax has escaped assessment. Hence, we do not find any infirmity in issuing notice u/s 148 of the Act. Accordingly, we dismiss ground No 2& 3 of the present appeal.
The first ground pertains to addition of 6.5% of the total amount of bogus purchases sustained by the Ld. CIT (A). The Ld. CIT (A) has restricted the addition to 6.5% of the total amount of bogus purchases by applying the ratio of law laid down by the Hon’ble Gujarat High Court in the case of CIT Vs. Simit P. Sheth (supra). The relevant para of the findings of the Ld. CIT (A) reads as under:- “6.10 The appellant made purchases from fifteen parties who are said to be hawala operators, who are 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 and 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 6 Assessment Year: 2009-10