NAGINBHAI KHIMJI CHOUDHARY,MUMBAI vs. INCOME TAX OFFICER 10(2)(4), MUMBAI
What did the Tribunal hold?
The Tribunal found the 12.5% profit rate to be on the higher side, considering the nature of the business and VAT paid. It directed the AO to recompute the income by applying a profit rate of 5%.
What were the facts?
The assessee, a dealer in metals, was found to have made purchases from hawala parties providing bogus bills. The Assessing Officer (AO) added 12.5% of these purchases as income. The CIT(A) upheld this addition.
What were the issues?
Whether the profit rate applied by the AO on bogus purchases is excessive, and if a lower rate should be applied.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
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- CIT v. Simit P. Sheth1,465 citing356 ITR 451 · 2013 · HC
Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SRI MAHAVIR SINGH
Heard together (2 matters)
Read from the judgment's own cause title. This page is filed under one of them.
Aayakr ApIla saM./ (inaQa-arNa baYa- / Assessment Year 2009-10) Aayakr ApIla saM./ (inaQa-arNa baYa- / Assessment Year 2010-11) Shri Naginbhai Khimji Commissioner of Income Choudhary Tax (Appeals-2), 97, Durgadevi Street, Room No. 529, 5th Floor, Vs. Kumbharwada, Mumbai-04 Aayakar Bhawan, M.K. Road, Mumbai-20 .. (p`%yaqaaI- / Respondent) (ApIlaaqaI- / Appellant) स्थायी लेखा िं./PAN No. AABPC5721H अपीलाथी की ओर े / Appellant by : Shri Manoj Pandit, AR प्रत्यथी की ओर े / Respondent by : Shri Kailash Kanojiya, DR ुनवाई की तारीख / Date of hearing: 12.02.2019 घोषणा की तारीख / Date of pronouncement : 12.02.2019 AadoSa / O R D E R महावीर स िंह, न्याययक दस्य/ PER MAHAVIR SINGH, JM:
These appeals filed by the assessee are arising out of the different orders of Commissioner of Income Tax (Appeals)-2, Mumbai [in short CIT(A)], in appeal No. CIT(A)-2/IT/73 & 10321/2017-18 vide dated ITAs no.4317 & 4318/Mum/2018 15.02.2018 & 20.03.2018. The Assessments were framed by the Income Tax Officer, ward 19(2)(4), Mumbai (in short ‘ITO/ AO’) for the A.Ys. 2009- 10 & 2010-11 vide dated 26.02.2015 & 20.02.2016 under section 143(3) read with section 147 of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The only issue in these appeals of assessee is against the order of CIT(A) confirming the addition made by AO applying the profit rate at 12.5% of the bogus purchase. For this assessee has raised identically worded grounds in both the years except the quantum. The facts and circumstances are exactly identical in both the years and hence, we will take the facts from AY 2009-10 and will decide the issue.
Briefly stated facts are that the assessee engaged in the business of dealer in ferrous and non-ferrous metals. 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. 22,49,142/- for AY 2009-10 & ₹ 3,80,90,771/-for AY 2010-11 as admitted by these hawala dealers in their deposition before the authorities. The same reads as under: - 2009-10 Name of party Amount Payal Enterprises 2,43,048/- Bhumi Enterprises 1,76,280/- KK Trading Co. 24,938/- Arihant Trading Co. 2,83,764/- Sunshine Metal Industries 4,23,155/- Apollo Metals 4,79,123/- Poornima Trading Co. 6,18,834/- ITAs no.4317 & 4318/Mum/2018 22,49,142/- 2010-11 Name of party Amount Registhan Metal IIndia) 21,715/- Gold Star Trading Co. 3,45,748/- Arihant Trading Company 4,73,414 Vasant Impex Private Limite 13,97,419 Apollo Metals 16,52,475 38,80,771/- 4. The AO issued noticed under section 133(6) to the parties which returned back with remark as ‘not known’ and assessee failed to produce these parties. During the course of assessment proceedings and during appellate proceedings, the assessee submitted documentary evidences such as payment 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 12.5% of ₹ 2,81,143/- for AY 2009-10 & ₹ 4,86,346/- for AY 2010-11 to the returned income of the assessee. Aggrieved, assessee preferred the appeal before CIT(A), who confirmed the addition made by the AO by observing in para 6.2 by following the decision of Hon’ble Gujarat High court in the case of CIT vs. Smith P. Seth (2013) 356 ITR 451 (Guj) by observing as under: - “6.2 In this back drop of addition made by the AO and also various submission placed by the appellant, I do not find any valid reason to interfere with the addition @ 12.5% of the alleged bogus purchases, and the addition made by the AO on this issue is upheld. All the above grounds are on the issue of this addition only, therefore, 4 ITAs no.4317 & 4318/Mum/2018 all the above grounds are treated as disposed off and dismissed.”
I have considered the issue and gone through the facts and circumstances of the case. I find from the facts of the case and argument of both the sides that the CIT(A) has confirmed the profit rate at the rate of 12.5%, which according to me is on higher side going by the nature of business of the assessee i.e. ferrous and Non-ferrous. I am in full agreement with the contentions raised by the assessee before CIT(A) and according to me a profit rate of 12.5% is on higher side as assessee has also paid the VAT element on these bogus purchases, a further deduction in estimation of profit to the extent of 7.5% can be allowed. Hence, I direct the AO to recompute the income after applying profit rate at the rate of 5% and compute the income accordingly. The appeal of the assessee is partly allowed.
Similar are the facts in AY 2010-11 and hence, I direct the AO to apply profit rate at the rate of 5% on the bogus purchases.
In the result, both, the appeals of assessee are party allowed.
Order pronounced in the open court on 12.02.2019. AadoSa kI GaaoYaNaa Kulao mao idnaMk 12.02.2019 kao kI ga[- . (महावीर स िंह /MAHAVIR SINGH) (न्याययक दस्य/ JUDICIAL MEMBER) मुिंबई, ददनािंक/ Mumbai, Dated: 12.02.2019 सुदीप सरकार, व.निजी सचिव / Sudip Sarkar, Sr.PS
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