VIKRAM N. CHANDAN,MUMBAI vs. ITO 19(3)(5), MUMBAI

The present appeal has been preferred by the assessee against the order dated 19.12.2017 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2010-11.

In ground No.1, the assessee has challenged the upholding the action of the AO in reopening the assessment under section 147 of the Act by Ld. CIT(A).

The facts in brief are that the case of the assessee is reopened by issuing a notice under section 148 of the Act on 04.02.2015 after the AO received information from DGIT(inv) vide letter dated 26.12.2013 to the effect that assessee is beneficiary of bogus purchase entries. The assessee made compliance of the notice under section 148 vide letter dated 19.02.2015 stating that the return already filed may kindly be treated as return in response to notice under section 148 and finally the assessment was completed vide order dated 32.12.2015 framed under section 143(3) read with section 147 of the Act by making an addition of Rs.18,77,658/-. The assessee challenged the reopening of the assessment before the first appellate authority on the ground that AO did not provide copy of materials and statements relied upon by him nor afforded any opportunity to the assessee to cross examine the parties. Finally, the Ld. CIT(A) held that there is no infirmity in the reopening of assessment and accordingly the same was dismissed.

After hearing both the parties and perusing the material on record, we find that the AO has received credible information from the DGIT, Mumbai to the effect that assessee is taking entries of bogus purchase and only after recording reasons to believe issued notice u/s 148 initiating the re-assessment proceedings. Therefore we do not find any defect or infirmity in the order of Ld. CIT(A) in upholding the reopening proceedings. So the ground raised by the assessee against re-opening of assessment is dismissed.

The assessee has challenged in ground No.2, the confirmation of addition of Rs.18,77,658/- by Ld. CIT(A) as made by the AO to the income of the assessee on account of bogus purchase @ 12.5%.

The facts in brief are that the assessee made the bogus purchase from 11 parties aggregating to Rs.1,50,21,269/- as given in para 2 of the assessment order which were found to be bogus and non existent. The AO during the reassessment proceedings issued notice under section 133(6) to all the parties however, the notices could not be served on those parties and returned back. Thereafter a show cause notice was issued to the assessee. The said show cause was replied by the assessee submitting that the goods in fact were purchased which were duly supported with bills and vouchers and also the payments were made by cheques through banking channels. Accordingly, the AO noted that the assessee could not produce the delivery challans and lorry receipts etc during the assessment proceedings. The AO also noted that the assessee has provided stock statements evidencing therein entries of the said purchases, therefore the AO came to the conclusion that assessee might have purchased from the grey market and finally after following the decision of the Hon’ble Gujarat High Court in the case of CIT vs. Simit P. Sheth 356 ITR 451 and in the case of Bholenath Poly Fab P. Ltd. 355 ITR 290, brought to tax the income @ 12.5% on the said alleged bogus purchases.

The Ld. CIT(A) dismissed the ground raised by the assessee challenging the quantum addition on the ground that the Ld. CIT(A) upheld the order of AO by reasoning that the assessee might have purchased the goods from the open market and thereby said benefits accrued in favour of the assessee and thus considered the 12.5% application of GP on the bogus purchases as most appropriate and thus upheld the order of AO.

We have heard the rival submissions of both the parties and perused the material on record. The Ld. A.R. vehemently argued before the Bench that the Ld. CIT(A) has wrongly confirmed the order of AO by ignoring the fact that assessee is dealing in ferrous and non-ferrous mental in which the GP is very low ranging from 2% to 4% and therefore upholding the order of AO has lead to unrealistic results by assessing the bogus purchases @ 12.5%. The Ld. A.R. prayed that the profit be assessed @ 3% to 4% as it is a case of ferrous and non ferrous mental after allowing the credit of GP declared by the assessee himself. The Ld. D.R., on the other hand, relied on the order of Ld. CIT(A).

After considering the rival submissions, we find that the order of Ld. CIT(A) upholding the GP of 12.5% is too high considering the nature of business of the assessee in which the margin of the assessee varies from 2% to 4%. Under these circumstances, we are of the view that a GP of 4% should be applied to the bogus purchases as the assessee is a dealer in ferrous and non ferrous steel items. The AO is further directed accordingly. The appeal is partly allowed.

In the result, the appeal of the assessee is partly allowed.