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ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER BENCH; 1. These two appeal by revenue under section 253 of the Income-tax Act (the Act) are directed against the separate order of ld. Commissioner of Income- tax (Appeals)-9, Mumbai [ld. CIT(A)] dated 05.10.2015 for Assessment Year 2010-11 & 2011-12 respectively. For Assessment Year 2010-11, the Revenue has raised the following grounds of appeal:
"1(a). On the facts and in the circumstances of the case, the Ld.CIT(A) erred in deleting the addition of Rs. 41,19,620/- made u/s 69C of the Income Tax Act, 1961 without appreciating that the assessee could not produce the parties from whom the purchases amounting to Rs. 1,43,10,592/- were made and thereby failed to establish the genuineness of the said purchases.
& 159 Mum 2016-Ms Ardh Metal Alloys Pvt. Ltd. l(b). On the facts and in the circumstances of the case, the Ld. CIT(A) failed to appreciate that the assessee had not offered a satisfactory explanation about the purchases of Rs. 1,43,10,592/- and, hence, the peak of the purchases of Rs. 41,19,620/- was deemed to be the income of the assessee u/s 69C and the relief allowed to the assessee on comparison of GP ratios was not in accordance with the provisions of law.
2. The appellant prays that the order of the Ld. CIT(A) be set aside and the order of the AO be restored.”
At the outset of the hearing, the ld. Authorized Representative (AR) of the assessee submits that tax effect involved in appeal for Assessment Year 2010-11 is less than Rs. 20,00,000/-, therefore, the Revenue is precluded from pursuing the appeal before the Tribunal in view of the latest Central Board of Direct Taxes (‘CBDT’) Circular No. 3/2018 dated 11th July 2018.
On going through the grounds of appeal, the ld. Departmental Representative (DR) for the Revenue conceded that the tax effect involved in the present appeal is less than Rs. 20,00,000/-. Considering the contention of both the parties, this appeal is dismissed as not pressed in view of the latest notification of CBDT Circular No. 3/2018 dated 11th July 2018.
In the result, appeal of the revenue is dismissed.
ITA No. 159/Mum/2016 for AY-2011-12
The Revenue has raised the following grounds of appeal:
"1(a). On the facts and in the circumstances of the case, the Ld.CIT(A) erred in deleting the addition of Rs. 1,01,51,860/- made u/s 69C of the Income Tax Act, 1961 without appreciating that the assessee could not produce the parties from whom the purchases amounting to Rs. 1,72,38,232/- were made and thereby failed to establish the genuineness of the said purchases. l(b). On the facts and in the circumstances of the case, the Ld. CIT(A) failed to appreciate that the assessee had not offered a satisfactory explanation about the 2 & 159 Mum 2016-Ms Ardh Metal Alloys Pvt. Ltd. purchases of Rs. 1,72,38,232/- and, hence, the peak of the purchases of Rs. 1,01,51,860/- was deemed to be the income of the assessee u/s 69C and the relief allowed to the assessee on comparison of GP ratios was not in accordance with the provisions of law. 2. The appellant prays that the order of the Ld. CIT(A) be set aside and the order of the AO be restored.”
Brief facts of the case are that the assessee is a company is engaged in manufacturing of ferrous and non-ferrous metals, filed its return of income for Assessment Year 2011-12 on 15.09.2011. The assessment was processed under section 143(1). Subsequently, the assessment was re- opened on the basis of information received from Sale Tax Department, Government of Maharashtra that during the Financial Year 2010-11, the assessee has made purchases of Rs. 1,72,38,232/- from various parties which has been declared as hawala dealers by Sales Tax Department, Government of Maharashtra. Those hawala dealers were not doing genuine business transaction rather involved in providing accommodation entries.
The assessee has shown the purchases of Rs. 1,72,38,232/- from eight such parties. The Assessing Officer on the basis of such information re-opened the assessment under section 147. Notice under section 148 dated 19.03.2013 was served upon the assessee. After hearing the representative of assessee, the Assessing Officer made the disallowance of Rs. 1,01,51,860/- on the basis of peak. On appeal before the ld. CIT(A), the entire addition was deleted. The ld. CIT(A) deleted the entire addition on the basis of Gross Profit declared by assessee @ 5.43% which was more & 159 Mum 2016-Ms Ardh Metal Alloys Pvt. Ltd. than average Gross Profit of Rs. 2.29% for four earlier Assessment Years. Therefore, aggrieved by the order of ld. CIT(A), the Revenue has filed the present appeal before the us.
We have heard the ld. DR for the revenue and ld. AR of the assessee and perused the material available on record. The ld. DR for the Revenue supported the order of Assessing Officer. The ld. DR further submits that Sales Tax Department, Government of Maharashtra and the Investigation Wing of Income-tax Department made a full-fledged enquiry about the bogus dealers/ hawala entry providers. The assessee has shown purchases from such eight parties whose names are appeared in the list of hawala dealers. Hawala dealers are indulged in issuing bogus bills without delivery of any material or goods. The assessee merely obtained the accommodation bills only to inflate the expenses and bring down the profitability in order to avoid the tax. The ld. DR submits that the addition made by Assessing Officer on the basis of peak may be maintained. In support of his submission, the ld. DR for the Revenue relied upon the decision of Soman Sun Citi vs. JCIT in ITA No. 2960/Mum/2016 dated 23.10.2017.
On the other hand, the ld. AR of the assessee relied upon the order of ld. CIT(A). The ld. AR of the assessee further submits that assessee is engaged in the business of manufacturing of Cooper, Brass, and Aluminum, ferrous, phosphorus bronze and non-ferrous metals. The assessee manufactured item of Copper, Brass, Steel, phosphorus bronze ,Aluminum and other non- 4 ITA No. 158 & 159 Mum 2016-Ms Ardh Metal Alloys Pvt. Ltd. ferrous metals, raw-materials are consumed. Generally scrap item are processed and manufactured in factory for producing and finishing goods.
Manufacturing done by process of melting, hot-rolling, cold rolling, drawing, intermediate labeling and cutting into length. The Assessing Officer made the addition without verifying the facts. The assessee has not produced any material from Bright Corporation of Rs. 50,60,533/-. Such purchases were made from B. Rajkumar Metal. The assessee during the re- assessment proceeding furnished copy of ledger account appeared in the assessee’s books of account, purchases invoices and delivery challan. Sales invoices for corresponding sales of purchase made from those parties. Bank statement showing the details of payment made through cross account payee cheque. The assessee also furnished chart showing the bill-wise purchase in respect of eight parties and corresponding sales. The Assessing Officer relied upon the third party information and insisted for producing the party. The assessee contended that the parties were not at the address since long time has passed. Some of the goods were purchased through brokers who used to contact the assessee with available goods depending upon the order in hand. The broker used to arrange the delivery of goods and delivery challan accompanied the physical delivery of goods. The broker used to collect the payment on behalf of supplier on due dates, the assessee was not in direct contact with supplier. The assessee was mainly concerned with required material which was duly received and the assessee 5 & 159 Mum 2016-Ms Ardh Metal Alloys Pvt. Ltd. has no personal occasion to verify the supplier. The assessee has proved the genuineness of purchases. The income of assessee was considered from sale of goods. The corresponding purchases and processing is not possible without purchases and consumption of goods. The Assessing Officer applies for peak theory on the basis of assumption and presumption without any evidence with him. The ld. AR of the assessee submits that the ld. CIT(A) passed the order after considering the entirety of the fact and which require no further interference. In alternative, the d. AR of the assessee submits that though no disallowance is warranted yet, the Tribunal may in its discretion disallowed a reasonable percentage of cost of purchase.
Keeping in view, the Gross Profit declared by assessee @ 5.43% for the year under consideration.
We have considered the rival submission of the parties and have gone through the orders of authorities below. We have noted that Assessing Officer has disallowed Rs. 1,01,51,860/- out of total purchases of Rs. 1,72,38,232/-. We have further noted that the Assessing Officer has not conducted any independent enquiry. The Assessing Officer has relied upon the third party. The Assessing Officer while making the disallowance on his observation that in absence of parties or broker, it cannot be accepted that the raw-material consumed for manufacturing the goods were actually purchased from the impugned parties. We have noted that the Assessing Officer has not given any finding on the documentary evidence furnished 6 & 159 Mum 2016-Ms Ardh Metal Alloys Pvt. Ltd. by the assessee. The books of account of assessee were not rejected. The Assessing Officer has not disputed the sale of the assessee. The disallowance made by the assessing officer is very high, particularly when the sales/ consumption of the assessee were disputed. The ld. CIT(A) on the basis of his observation that assessee has shown more than average Gross Profit comparative to earlier four Assessment Years deleted the entire addition. Similarly, the deletion of entire purchases is not justified only on the basis of gross profit ratio of earlier years.
We are of the considered opinion that under Income Tax Act only real income can be taxed by the Revenue. We may further conclude that even if the transaction is not verifiable, the only taxable is the taxable income component and not the entire transaction. And after considering the facts of the case and the rival contentions of the parties we are of the opinion that in order to fulfill the gap of revenue leakage the disallowance of reasonable percentage of such purchases would meet the end of justice. The Hon’ble Bombay High Court in the case of “CIT vs. Hariram Bhambani” in ITA No.313 of 2013 decided on 04.02.15 also held that the Revenue is not entitled to bring the entire sales consideration to tax, but only the profit attributable on the total unrecorded sale consideration alone can be subject to income tax. Therefore, considering the facts of the case, we are of the view that in order to fulfill the gap of revenue leakage, the disallowance of alleged bogus purchases @12.5% would meet the end of justice. 7 ITA No. 158 & 159 Mum 2016-Ms Ardh Metal Alloys Pvt. Ltd. Therefore, we direct the assessing officer to restrict the disallowance of bogus purchases @12.5 % of the impugned (disputed) purchases.
In the result, appeal of the revenue is partly allowed.