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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SRI MAHAVIR SINGH
This appeal by the assessee is arising out of the order of Commissioner of Income Tax (Appeals)-10, Mumbai [in short CIT(A)], in appeal No. CIT(A)-10/The Income Tax Officer 5(2)(3)/458/2015-16 dated 27-09-2017. The Assessment was framed by the Income Tax Officer, Ward 5(2)(3), Mumbai (in short ‘ITO') for the A.Y. 2011-12 vide order dated 18.01.2016 under section 143(3) read with section 147 of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The only issue in this appeal of assessee is against the order of CIT(A) confirming the action of the AO in making addition of 100% of bogus purchases at ₹ 19,03,778/-. For this assessee has raised the following grounds: - “Ground I - Addition @100% of Hawala Purchases of Rs. 19,03,778/- Id. CIT(A) erred in making addition of 12.5% and not appreciating the facts of the case wherein the assessee has submitted the invoices, Bank Statement (reflecting payment though account payee cheque) and Stock Movement - being inwards of material (from suspicious dealer) and its subsequent sales with profit margin oil same Thus, onus of proving transactions genuine was completed. Further, Id. AO never doubted or questioned such details, and in particular with respect to stock movements and thus, considering the purchases as genuine, addition is bad in law and needs to be deleted.
Ground 2— Earlier Year was assessed @ 12.5% The Ld. CIT(A) erred in understanding the fact that Addition from bogus purchases were restricted @ 12.5% and considering principle of consistency, CIT(A) should have restricted the addition to 12.5% Ground 3- No Opportunity to Cross - Examine the Parties The Ld. CIT(A) erred in understanding that the AO has merely relied on information received from sales tax department without making independent enquiries. Further neither any statement oil reliance was paid for addition was provided to appellant nor opportunity of cross examination was provided, denying principle of natural justice, and thus addition is bad in law and needs to be deleted.
Ground 4 -Restriction of Addition upto Difference of Profit Margin Between Alleged Purchases and Overall Cross Profit.
Without Prejudice to Above Grounds, Under the facts and circumstances of case and in law, the Ld. CIT (A) erred in not restricting additions upto difference of Profit margin earned in such alleged purchases and overall Gross Profit. Hence, addition should be restricted to 2.03% i.e. Overall Gross Profit-7.13% and Alleged Purchases Margin being 5.1%.
Ground 5 - Addition to the restricted to 6% -6.5% Without prejudice to above, the Ld. CIT(A) erred in understanding that in case of CIT Vs Simit P Sheth by ITAT— Ahmedabad as confirmed by Hon'ble Gujarat High court in addition of 12.5% - Sales Tax was 10% (in Gujarat) and 2.5% as margin.
Accordingly, the addition should be restricted to 6% to 7% - Sales Tax Rate (4% in Maharashtra) and profit margins (which is estimated to be around 2% to 3%),”
I have heard the rival contentions and gone through the facts and circumstances of the case. I find from the facts of the case that the assessee company is engaged in the business of ferrous metal i.e. iron and steel. According to AO, the assessee had made purchase from hawala parties namely M/s Mona Metals/ Metalex Metal Corporation amounting to ₹ 19,03,778/-. As the assessee could not prove the purchases as genuine, he made addition. Aggrieved assessee preferred the appeal before CIT(A). The CIT(A) confirmed the action of the AO by observing in Para 6.3.48 by making 100% addition as under: - “6.3.48 For AYs 2011-12, as held by the Hon’ble High Court of Gujarat in the case of Commissioner of Income Tax vs. Bholanath Poly Fab Pvt. Ltd. (2013) 355 ITR 0290 (Guj) & CIT v. Simit P Sheh (2013) 356 ITR 451 (Guj HC), not the entire purchase price but only profit element embedded in such purchases can be added to the income of the assessee. However, the details of payments made for purchases during AY 2011-12 have not been brought on record, on the contrary the alleged dealer i.e. M/s Mona Metals has been shown as Sundry Creditor in the financial statements for the, year under reference. Therefore, in my view, the source of expenditure incurred on the corresponding purchases recorded in the books of account, stated to be made through Mts. Mona Metals remains unexplained. Hence the amount of Rs. 19,03,778/- stated to be expenditure incurred on material purchased from MIs. Mona Metals is held as unexplained expenditure u/s 69C of the Act. -”
Aggrieved, now assessee is in second appeal before Tribunal.
I have heard the learned Sr. Departmental Representative and going through the facts and circumstances of the case. Admittedly, these parties are in hawala parties and the assessee is unable to bring movement of goods i.e. transportation of goods for purchase of these items. The assessee himself admitted that addition should be restricted to 6 to 7% by one ground No.
5. I find that the Hon’ble Gujarat High Court in the case of CIT vs. Simit P Sheth [2013] 356 ITR 451 (Gujarat) has upheld the disallowance at 12.5% on bogus purchases. Admittedly, the assessee has obtained accommodation bills for purchase made from grey market for the purpose that assessee has saved 5 to 6% of Vat and purchase made from grey market at a lower profit rate. It means that the assessee has saved to the extent of ₹ 12.5%. It means that I have to restrict the addition of profit rate at 12.5%. Respectfully, following the Gujarat High Court in the case of Simit P Sheth (supra), I direct the AO to restrict the disallowance of bogus purchases at 12.5% and appeal of assessee is partly allowed.
In the result, the appeal Assessee is partly allowed.
Order pronounced in the open court on 07-05-2018. AadoSa kI GaaoYaNaa Kulao mao idnaMk 07-05-2018 kao kI ga[- .