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Income Tax Appellate Tribunal, MUMBAI BENCH “H”, MUMBAI
Before: SHRI C.N. PRASAD & SHRI RAJESH KUMAR
Per Rajesh Kumar, Accountant Member:
The above titled appeals one by the assessee and the other by the Revenue have been preferred against the order dated 31.03.2015 of the Commissioner of Income Tax
The only issue raised by the assessee in the sole ground of appeal is against the part confirmation of addition to the tune of Rs.16,55,350/- being 12% of the total disallowance of alleged purchases of Rs. 1,37,94,578/- by Ld. CIT(A).
3. The brief facts are that the assessee filed return of income on 10.10.2010 declaring total income of Rs.5,48,690/-. The case of the assessee was selected for scrutiny and notices were duly issued and served on the assessee. The assessee is a proprietor of M/s. Alpa Enterprises and is engaged in trading of iron, steel, paints, hardware, tools and other industrial items and during the year derived income by way of business, house property and income from other sources. During the course of assessment proceedings, the assessee was asked to furnish the name and addresses of the parties/suppliers from whom purchases exceeding Rs.2 lakhs were made. From the said details, the AO observed that the assessee has made purchases from seven parties namely Bhumi Sales Corporation, Diamond Traders, Hitech Impex, Jay Industries, M.R. Corporation, Somnath International and Subh Enterprises which are listed as hawala dealers by the Sales Tax Authorities and accordingly a show cause notice on 15.03.2013 to the assessee as to why the said purchases aggregating to Rs.1,37,94,578/- should not be disallowed. The show cause notice was replied by the assessee vide written submissions dated 19.03.2003 by 3 & ITA No.3601/M/2015 Mr. Kamal Rameshbhai Doshi submitting that the assessee has duly made purchases from these parties and paid VAT on the said purchases. The assessee also submitted that the time of said purchases, the sales tax numbers of the suppliers were valid and it is only afterwards these were cancelled by the Sales Tax authorities for non payment of sales tax collected from various parties including assessee. The assessee submitted that the payments were made by the cross payee cheques, the goods purchased from these dealers were sold and duly accounted for in the books of accounts. The assessee also filed the bill- wise statement of purchases and sales with corresponding bills and vouchers. The assessee also filed a detailed calculation of peak purchases from the said parties which worked out to Rs.98,70,548/-. The AO brushed aside the submissions of the assessee and added a sum of Rs.98,70,548/- to the total income of the assessee under section 69C.
4. In the appellate proceedings, the Ld. CIT(A) restricted the addition to Rs.16,55,350/- being 12% of the total bogus purchases to cover up the possible leakages in the purchases including element of inflation and thus partly allowed the appeal of the assessee.
5. The assessee personally attended the proceedings before the Bench and submitted written submissions wherein the assessee reiterated his argument as made before the Ld. CIT(A). The assessee also submitted a comparative GP of last four years which is the maximum in the steel and iron trading the detail whereof is as under:
4 & ITA No.3601/M/2015 Mr. Kamal Rameshbhai Doshi i) 2007-08 2.85% ii) 2008-09 2.25% iii) 2009-10 2.04% iv) 2010-11 1.89% The assessee submitted before the Bench that at the time of purchases these parties were genuine and were duly registered under M Vat Act, 2012 and therefore, there is no question of bogus purchases by the assessee as well as the identity of these suppliers were not in doubt. The assessee submitted that subsequently these suppliers absconded with the VAT collected from various customers including the assessee and must have given a false statement to the Sales Tax Authorities. The assessee submitted that the payments were made by the assessee by cross payee cheques and the purchases were duly recorded and shown in the books of accounts which was reflected in profit & loss account. Under these circumstances, the act of first appellate authority in part sustaining the addition to the tune of Rs.16,55,350/- is not correct and should be reversed. The assessee relied on certain decisions namely the decision of Hon’ble Gujarat High Court in the case of Principal Commissioner of Income Tax vs. Jagdish H Patel in Tax Appeal No.411 of 2017 with Tax Appeal No.413 of 2017 and the decision of the co-ordinate bench of the Tribunal in the case of DCIT vs. Shri Shivshankar R. Sharma in ITA No.5149/M/2014 & 4260/M/2015 and requested the Bench to allow the appeal of the assessee. The assessee also without prejudice to the above , submitted that lenient view may kindly be taken and addition be sustained on
We have heard the rival submissions and perused the relevant material on record. We find that the assessee is undoubtedly a beneficiary of bogus purchases as has been observed by AO and Ld. CIT(A). The undisputed facts are that assessee purchased the goods from these seven hawala parties, made the payments by cheques and recorded the purchases in the books of accounts as well as the corresponding sales. As a matter of fact the hawala operators are very common in the market and there is every likelihood that assessee has resorted to the taking of hawala entries from the said parties. But when the sales of the assessee are not disputed, the another theory which comes into play is that the assessee purchased goods from the grey market and thus in order to make up the non delivery of goods in the hawala purchases, in the whole process the assessee is likely to make a saving by way of non payment of VAT and other incidental levies. Therefore, under these circumstances, the assessee has to brought to tax on a reasonable basis considering the gross profit rates and other attendant factors in the past. In the present case, the GP of the assessee ranged between 2.85% to 1.89% from 2007-08 to 2010-11. So under these circumstances, we are of the view that the disallowance as sustained by Ld. CIT(A) is excessive and needs to be reduced further. Considering the gross profit rate of past three years, we are of the opinion that 6 & ITA No.3601/M/2015 Mr. Kamal Rameshbhai Doshi restriction of addition to 6% of the total purchases in order to bring the said purchases to tax which would be suffice to cover any possible leakage of revenue. The AO is directed accordingly
In the result, appeal of the assessee is partly allowed. (Revenue’s appeal) 8. Since we have already decided the issue in appeal No.3378/M/2015, therefore, the cross appeal of the Revenue stands dismissed.
In the result, appeal of the assessee is partly allowed and the appeal of the Revenue is dismissed.
Order pronounced in the open court on 13.04.2018.