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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)-25, Mumbai [in short CIT(A)], in appeal No. CIT(A)-25/IT-285/2015-16/257 dated 06.12.2017. The Assessment was framed by the Income Tax Officer, Ward 27(1(5), Mumbai (in short ‘ITO') for the A.Y. 2009-10 vide order dated 20.03.2015 under section 143(3) 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 addition made by the AO by applying the profit rate at 12.5% of the bogus purchase. For this assessee has raised following ground: - “The learned CIT(A), confirmed the ad’hoc addition @ 12.5 on the quantum of purchases affected from suspicious hawala dealer for ₹ 20,92,650/-, which is unwarranted/ unjustified.
The learned CIT(A), confirmed the sales figure as per books of accounts but confirmed the addition made the learned AO in assessment order under section 143(3) for GP addition @ 12.5%.”
Briefly stated facts are that the assessee is engaged in the business of iron and steel. The AO received information from DGIT (Investigation), who in turn received information from Sales Tax Department, Mumbai that the assessee has made purchases from hawala parties, as listed in hawala dealers by the Maharashtra Sales Tax Department who are providing bogus bills of purchase amounting to Rs. 1,67,41,201/- as admitted by these hawala dealers in their deposition before the authorities. The same reads as under: -
The AO issued noticed under section 133(6) to the parties which returned back with the remark as “left” and assessee failed to produce these parties. During the course of assessment proceedings and during appellate proceedings, the assessee submitted all the documentary evidences such as inward register, stock register, payments received against such sales, receipt of material purchases, account payee cheque. According to the AO, the assessee failed to establish the genuineness of the purchase and accordingly, he made addition of unproved purchase at the rate of 12.5% of bogus purchases i.e. Rs. 20,92,650/- to the return income of the assessee. Aggrieved, assessee preferred the appeal before CIT(A), who confirmed the addition made by AO by observing in para 5.4.5 as under: - “5.4.5 In View of the facts and circumstances of the case and the judicial pronouncements cited above, what can be disallowed or taxed in the instant case, is the excess profit element embedded in such purchases shown to have been made from aforesaid parties. As narrated earlier, the AO in this case has held that the parties from whom the purchases were made by the appellant were found to be bogus, estimations ranging from 12.5% to 25% have been upheld by the Hon'ble Gujarat High Court, depending upon the facts of the case. In a number/series of recent cases involving similar set of facts as in the instant case, the Hon'ble Mumbai Tribunal has estimated the G.P. addition on account of such bogus purchases as 12.5%, some of which are listed below: i) Smt. Kiran Navin Doshi in dated 18.01.2017. ii) Ashwin Purshotam Bajaj & Anr. Vs ITO & Anr. ,in ITA No.4736/Mum/2014, 5207/Mum/2014,dated:14-12-2016. iii) ITO &Anr. Vs. Manish Kanji Patel & Anr., in ITA No. 7299/Mum/2014, 7154/Muni/2012 & 7300/Mum/2014, 7627/Mum/2014, dated: 18-05- 2017. iv) Ratnagiri Stainless Pvt. Ltd. Vs. ITO, in ITA No.4463/Mum/2016, dated: 04-04-2017. v) Metropolitan Eximchem Ltd., ITA No. 2935/Mum/201 5, dated:29-03-2017.; vi) Ronak Metal Industries vs. ITO, ITA No. 722/Mum/201 7 dtd. 04.09.2017; vii) ITO vs. Jugraj R. fain, ITA No. 2571/Mum/2016 & 2572/M/2016 dtd. 02.08.2017; viii) B.JI. Exports vs. Asstt. Commissioner of Income tax, ITA No. 5442-5444/Mum/2016 dated 13.09.2017, ix) Batliboi Environmental Engineering Ltd. vs. Deputy Commissioner of Income-tax, ITA No. 2840 & 3482/M12015 dated 15.03.2017, x) Deputy Commissioner of Income-tax & Anr. Vs. Remi Process Plant & Machinery Ltd. & Anr., [TA No. 1723/M/2015, 1817/14/2015 dated 21.03.2017. xi) Suit. Usha B. Agarwal vs. ITO, [TA No. 7034/Mum/2016, dated 01.09.2017.
In view of the above discussed factual man-ic and precedents, I am of the view that the AO is justified in estimating the profit element calculated @ 12.3% embedded in impugned purchases of Rs. 1.67 crore shown from the alleged hawala parties and adding the same to the total income returned. The assessment order of the AO is a well-reasoned and a speaking order giving in detail the reasons for his fair estimation and therefore, I do not see any reason to take a view in the matter different from the one taken by the Assessing Officer. The action of the AO in estimation of 12.5% is sustained.
Thus the 1st ground of appeal is dismissed.”
5. I have heard the rival contentions and gone through the facts and circumstances of the case. I find that the assessee is engaged in the business of Iron and steel. It is a fact that the assessee is unable to establish the transportation of goods purchased by it. Even the parties from whom the assessee is obtained accommodation entries are not examined as they were not available at the given address. It means that the assessee has only obtained accommodation bills without actual purchasing the goods. The assessee had purchased the material from grey market avoiding all the payment of Vat and also at lower rate. It means that the assessee has earned a higher profit on these bogus purchases. Accordingly, I am of the view that the assessee might have made profit at the rate of 8%. In similar circumstances, Hon’ble Gujarat High Court in the case of CIT vs. Smith P. Seth (2013) 356 ITR 451 (Guj) restricted the disallowance at 12.5% of the bogus purchases by estimating the profit rate at 12.5%. I am of the view that assessee is engaged in the business of Iron and steel, which give little profit.
Accordingly, I estimate the profit rate at the rate of 8% and direct the AO to compute the income after applying the profit rate at the rate of 8%. Appeal of the 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[- .