ASLAM BRAHIM MALIM,MUMBAI vs. ITO 15(3)(3), THANE

Briefly stated, the assessee being resident individual engaged in the business of installation & repair of Air Conditioners and resale of Air Conditioner parts under proprietorship concern namely temperature & Engineering Works was subjected to scrutiny assessment u/s 143(3) wherein it was noted that the assessee made aggregate purchase of Rs.59,66,347/- from two suspicious entities namely Rupani & Co. and Sagar Steel Traders. The notices issued u/s 133(6) to the said entities elicited no satisfactory response. Accordingly, the assessee was asked to substantiate the purchases made from these two parties. The assessee, while defending the purchases, submitted copies of invoices and submitted that payments were through banking channels. However, not convinced, Ld. AO treated the same as bogus purchases and added the same to the income of the assessee.

Aggrieved, the assessee contested the same without partial success before Ld. CIT(A) vide impugned order dated 29/05/2015 wherein Ld. CIT(A) considered the various submissions made by assessee and judicial pronouncements on the subject matter. Finally, ITA.No.4725/Mum/2015 Aslam Ibrahim Malim Assessment Year- 2010-11 considering the Gross Profit Rate of 12.5% already reflected by the assessee, Ld. CIT(A) directed the Ld. AO to increase the Gross Profit Ratio in respect of the bogus purchases to 16.5% as against 12.5% shown by the assessee in respect of other purchases. The Ld. CIT(A) further opined that since the assessee purchased the goods from grey market, the payment made to hawala parties represented unexplained cash of the assessee, the peak credit of which was liable to be added to the income of the assessee. Accordingly, Ld. CIT(A) worked out peak credit of Rs.45.51 Lacs against the same and proposed addition thereof as unexplained expenditure u/s 69C. The Ld. CIT(A) also proposed another addition @2% to account for commission against these purchases which worked out to Rs.1,19,326/-. Aggrieved, the assessee is in further appeal before us. The Ld. Departmental Representative has placed reliance on the stand of lower authorities.

Upon careful consideration, the approach of Ld. first appellate authority in proposing additions from various angles was not justified since the nature of assessee’s business required purchase / consumption of material and there could be no sale without actual purchase of goods. The assessee already reflected Net profit Rate of 6.53% on sale turnover of Rs.2.27 Crores. The turnover achieved by the assessee has not been disputed by the revenue and the payments were through banking channels. The assessee was in possession of primary purchases documents. At the same time, the assessee could not substantiate the delivery of material and failed to produce any of the party for confirmation of accounts. Notices issued u/s 133(6) elicited no satisfactory response. All these factors cast a serious doubt on ITA.No.4725/Mum/2015 Aslam Ibrahim Malim Assessment Year- 2010-11 assessee’s claim. Therefore, in such a situation, the addition, which could be made, was to account for profit element embedded in these purchase transactions to factorize for profit earned by assessee against possible purchase of material in the grey market and undue benefit of VAT against such bogus purchases. Therefore, on factual matrix, a composite addition @12.5% of bogus purchase, in our opinion, would be a reasonable estimation of additions. Hence, we estimate the same @12.5% of alleged bogus purchases of Rs. 59,66,347/- which comes to Rs.7,45,793/-. Accordingly the addition to the extent of Rs.7,45,793/- stand confirmed whereas other additions, in this regard, stand deleted.

Resultantly, the assessee’s appeal stand partly allowed. Order pronounced in the open court on 22nd June,2018 Sd/- Sd/- (Saktijit Dey) (Manoj Kumar Aggarwal) �ाियक सद� / Judicial Member लेखा सद� / Accountant Member मुंबई Mumbai; िदनांक Dated : 22.06.2018 Sr.PS:- Thirumalesh आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. ��थ� / The Respondent 2. आयकर आयु�(अपील) / The CIT(A) 3. आयकर आयु� / CIT – concerned 4. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai 5. गाड� फाईल / Guard File 6.