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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SRI MAHAVIR SINGHShri Rajkumar B. Mutreja
Date of hearing: 14-02-2018 Date of pronouncement : 23-02-2018 O R D E R PER MAHAVIR SINGH, JM:
These cross appeals are arising out of the common order of Commissioner of Income Tax (Appeals)-29, Mumbai, [in short CIT(A)] in appeal No. CIT(A)-29/IT-94/18(3)(1)/14-15 dated 07-05-2015. The Assessment was framed by the Income Tax Officer, ward 14(1)(1), Mumbai (in short ITO) for the assessment year 2009-10 vide order dated 27-08-2014 under section 143(3) of the Income Tax Act, 1961(hereinafter ‘the Act’).
The only common issue in these cross appeals of Revenue is as regards to the order of CIT(A) restricting the addition at 25% of the bogus purchases added by the AO under section 69C of the Act amounting to ₹ 21.97 lacs.
CO No. 92/Mum/2016 3. Briefly stated facts are that the assessee is a general trader in optical frames and carries his business in Ghatkopar at Mumbai. AO received information from the DGIT (Inv) Mumbai, who in turn received information from Sales Tax Department that the assessee is a beneficiary of the bogus purchases / accommodation entry of bogus bills from the following parties: - Hawala Tin Hawala PAN Hawala Dealer name Amount 27410483032V AWTPS0269A Tara Enterprises 9,62,728 27920363580V ACTPS9740C Sagar Enterprises 12,62,560 4. The AO asked the assessee to prove the purchase and in response the assessee filed accounts of parties, bank statement showing payment made to alleged bogus entry providers and the address of the parties. According to AO the entire purchase is bogus and hence, he added the bogus purchase as unexplained expenditure under section 69C of the Act amounting to ₹ 21.97 lakhs. Aggrieved, assessee preferred the appeal before CIT(A), who relying on the decision of Hon’ble Gujarat High Court in the case of CIT vs. Simit P Sheth and also order of ITAT Ahmedabad Bench in the case of Vijay Proteins Ltd. Vs. ACIT 58 ITD 428 restricted the disallowance at 25% by observing as under: -
“3.3.2 Reference in this regard is made to the decision of Gujarat High court in the case of CIT vs. Smit P Sheth O/TAXAP/552/2012 Tax Appeal No.533 of 2012 dt. I6.01.2013 and ITAT Ahmedabad in the case of M/s.Vijay Proteins Ltd. vs. ACIT 58 lTD 428 wherein on similar facts, where quantitative details were not reliable, addition of a part of total disputed purchases has been upheld.
3.3.3 In the case of Vijay Proteins P. Ltd., 25% of purchases have been held as disallowable whereas in the case of Simit P. Shah 12.5% of such purchases have been held as disallowable.
CO No. 92/Mum/2016 3.4 Considering the facts in totality in these cases, AO is directed to limit the disallowance @ 25% of total purchases shown from tainted suppliers.”
Aggrieved, both assessee as well as Revenue came in appeal before Tribunal.
I have heard the rival contentions and gone through the facts and circumstances of the case. I find from the facts of the case that admittedly these are bogus purchases and AO also admits that the assessee has made purchase from the grey market but obtained bill from hawala parties. In such circumstances only alternative is application of profit rate. In view of the above, I am of the view that reasonable profit rate should be estimated. The assessee might have avoided VAT payment which is at the rate of 4% plus some profit on lower margin for which assessee might have made purchases from grey market at a lower price. Accordingly, I estimate the profit rate on the above alleged bogus purchases at 12.5% apart from whatever declared. Accordingly, I delete the application of profit applied by CIT(A) at 25% and instead of that I direct the AO to adopt the profit rate at 12.5%. The appeal of assessee is partly allowed.
In the result, the appeal of assessee is partly allowed and that of the Revenue is dismissed.
Order pronounced in the open court on 23-02-2018