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Income Tax Appellate Tribunal, “SMC” Bench, Mumbai
O R D E R Per B.R. Baskaran (AM) :-
The appeal filed by the assessee is directed against the order dated 6.10.2017 passed by the learned CIT(A)-37, Mumbai and it relates to A.Y. 2010-11. The assessee is aggrieved by the decision of the learned CIT(A) in partially sustaining the addition relating to alleged bogus purchases.
The assessee company is engaged in the business of trading in gift articles. Consequent to information received from the Sales Tax Department that certain dealers have provided accommodation bills without actually supplying goods and upon noticing that the assessee has purchased goods from one of such dealers named M/s. Shree Jalaram Enterprises, the Assessing Officer reopened the assessment of the year under consideration by issuing notice u/s. 148 of the I.T. Act. Before the Assessing Officer the assessee could reconcile the purchases and sales. Hence the Assessing Officer chose to make an addition of 15% of the alleged bogus purchases. In the appeal filed before the learned CIT(A), the first appellate authority reduced the 2 Shri Rajen N. Shanghvi addition to 12.5% of the alleged bogus purchases. Still aggrieved, the assessee has filed this appeal before the Tribunal.
We have heard the parties and perused the record. The Learned AR submitted that the SMC bench of Tribunal has considered an identical issue in the assessee’s own case for A.Y. 2009-10 in dated 04- 05-2017 the Tribunal has sustained addition to the extent of 5% of the value of bogus purchases. The Learned AR prayed that the said order may kindly be followed in the year under consideration also, as there is no change in facts.
4. On the contrary, learned DR strongly supported the order passed by the learned CIT(A).
We noticed that an identical issue was considered in assessee’s own case in A.Y. 2009-10 by SMC bench of Tribunal, wherein addition was restricted to 5% of the value of bogus purchases with following observations :-
3. I heard the parties and perused the record. I notice that the assessee has purchased 8012 pieces of a gift article (Popcorn maker) from M/s Neptune Corporation. Out of the same, 7412 pieces have been sold to M/s Sun Pharma Ltd and 600 pieces have been sold to M/s Ranbaxy Ltd. The assessee has furnished copies of purchase invoices, sales invoices, copies of orders placed by M/s Sun Pharma and M/s Ranbaxy Ltd. The AO has also stated that the assessee has maintained stock register and also reconciled the purchase and sales. Since the sales have been proved, the AO has taken the view that the assessee could have purchased goods from grey market and accordingly estimated the profit that could have been made out of purchases. The Ld CIT(A) has also observed that the purchase of goods are not being doubted, but the source of purchase is being doubted.
The Ld A.R submitted that the Gross profit rate has gone up during the year under consideration as compared earlier years and subsequent years. He submitted that the assessee declared G.P rate at 9.14% during the instant year as compared to 8.80% and 7.60% in the immediately preceding year. In the succeeding year, the G.P rate was declared at 4.91%. Accordingly the Ld A,R submitted that the question of suppression of profits by purchasing goods at a lower rate from grey market does not arise.
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5. On the contrary, the Ld D.R submitted that the information received from Sales tax department prove that the assessee has received only accommodation bills. The assessee has not produced the supplier nor any confirmation letter filed. The assessee has also not proved the transportation of materials from the supplier to the assessee. Accordingly she submitted that the Ld CIT(A) was justified in upholding the view of the AO that the assessee could have purchased goods from grey market.
6. I notice that the AO has not doubted the sale of gift articles and doubts the source of purchase only. Though the assessee has produced purchase and sales bills, yet the assessee has not furnished details of transportation of goods. The purchase bills state that “the goods delivered at Bhiwandi Godown on your behalf”. The assessee has not explained the meaning of this statement nor did he explain the mode of transportation. Hence I am of the view that the tax authorities are justified in doubting the source of purchases. However, since the assessee has shown higher G.P rate during the year under consideration, the rate of profit estimated by the AO appears to be on the higher side. Accordingly I am of the view that addition may be restricted to 5% of the purchases in order to take care of the profit, if any, earned from purchases made from other sources. Accordingly I modify the order passed by Ld CIT(A) and direct the AO to make addition at 5% of the purchases made from M/s Neptune corporation.
During the year under consideration, we notice the assessee has purchased 6100 set of Folding Stools and same has been supplied to M/s. Sun Pharmaceuticals Industries Ltd., a well known public limited company. According to Ld A.R, the goods were directly supplied to the above said buyer from the premises of seller. In AY 2009-10 also, the assessee had reconciled the purchases and sales. Hence there is merit in the contentions of the Ld A.R that there is no change in facts relating to the issue under consideration. Under these set of facts, we are of the view that the order passed by ‘SMC’ Bench in assessee’s own case for A.Y. 2009-10 (referred supra) may be followed in this year also. Accordingly, we modify the order passed by the learned CIT(A) and direct the Assessing Officer to restrict the addition to 5% of the value of alleged bogus purchases.
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In the result, appeal filed by the assessee is partly allowed.
Order has been pronounced in the Court on 3.4.2018.