NARESH P. JAIN,MUMBAI vs. INCOME TAX OFFICER 18(2)(4), MUMBAI

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ITA 6842/MUM/2017Status: DisposedITAT Mumbai22 February 2018AY 2009-103 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal found merit in the assessee's argument that the profit estimation should be lower, considering the applicable VAT rate and the assessee's consistent gross profit declaration. The addition was restricted to 8% of the alleged bogus purchases.

What were the facts?

The assessee purchased materials worth Rs. 99.48 lakhs from two dealers who were later found to be issuing accommodation bills. The Assessing Officer reopened the assessment and made an addition of 12.5% of the purchase value as profit, which was confirmed by the CIT(A).

What were the issues?

The primary issue was the estimation of profit on alleged bogus purchases when the suppliers could not be traced. The secondary issue was the appropriate rate of profit to be estimated.

Which sections of the Income-tax Act were involved?

Section 133(6)

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Income Tax Appellate Tribunal, “SMC” Bench, Mumbai

Before: Shri B.R. Baskaran (AM)

For Appellant: Shri R.C. Sharma
For Respondent: Ms. Arju Goradia
Hearing: 22.2.2018Pronounced: 22.2.2018

The appeal filed by the assessee is directed against the order dated 27.9.2017 passed by the learned CIT(A)-29, Mumbai and it relates to A.Y. 2009-10. The assessee is aggrieved by the decision of the learned CIT(A) in confirming the addition relating to alleged bogus purchases.

2.

I heard the parties and perused the record. The assessee is engaged in the business of manufacturing and trading in ferrous and non-ferrous metals. Consequent to the information received by the income tax department from the sales tax department of Maharashtra that certain dealers are indulging in providing only accommodation bills, without actually supplying the material and upon noticing that the assessee has purchased materials from two of such dealers aggregating to Rs. 99.48 lakhs, the Assessing Officer reopened the assessment of the year under consideration. The Assessing Officer asked the assessee to submit all documentary evidences to prove the genuineness of those purchases. He also issued notices u/s. 133(6) of the Act to those two parties named M/s. Om Corporation and M/s. Disha Enterprises. However,

2 Mr. Naresh P. Jain notices were returned back with the remake “not known” or “left”. The assessee also did not furnish any confirmation letter obtained from those parties. Hence, the Assessing Officer took the view that the assessee has obtained accommodation bills for the purpose of accounting his unaccounted goods. Since, the sales were accepted, the Assessing Officer took the view that the profit embedded in the alleged bogus purchase is required to be assessed in the income tax purpose. Accordingly, by following the decision rendered by Hon'ble Gujarat High Court in the case of Simit P. Sheth (356 ITR 451) the Assessing Officer took the view that the profit may be estimated at 12.5%. Accordingly, the Assessing Officer computed the addition at 12.5% of Rs. 99.48 lakhs, which worked out to Rs. 12.43 lakhs. The Assessing Officer added the same to the total income returned by the assessee. The learned CIT(A) also confirmed the same and hence the assessee has filed this appeal.

3.

Learned AR submitted that the assessee has reconciled the purchase and sale and hence the Assessing Officer has estimated profit @ 12.5% by following the decision rendered by Hon'ble Gujarat High Court in the case of Simit P. Sheth (supra). He submitted that the vat rate applicable in the case before Hon'ble Gujarat High Court was higher and hence profit was estimated by Hon'ble Gujarat High Court at 12.5%. Learned AR submitted that the vat rate applicable to the assessee to the material dealt by the assessee is only 4% and further the assessee has been declaring gross profit rate of 4% consistently over many years. Accordingly, he submitted that the gross profit rate of 12.5% is very much on higher side.

4.

On the contrary, learned DR strongly supported the order passed by the learned CIT(A).

5.

Having heard the rival submissions, I am of the view that there is merit in the contentions of learned AR. Considering the fact that the vat rate applicable to the material dealt by the assessee at 4% and also considering the fact that the assessee has been declaring gross profit rate also of 4%

3 Mr. Naresh P. Jain consistently, I am of the view that the profit embedded in the alleged bogus purchases may be estimated at 8%. In my view the same would put this issue at rest. Accordingly, I set aside the order passed by the learned CIT(A) on this issue and direct the Assessing Officer to restrict the addition to 8% of the alleged bogus purchase.

6.

In the result, appeal filed by the assessee is partly allowed. Order has been pronounced in the Court on 22.2.2018.

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