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Income Tax Appellate Tribunal, “SMC”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM Shri. Mahavir Metal,
आदेश / O R D E R PER R.C.SHARMA (A.M):
This is an appeal filed by the assessee against the order of CIT(A)- 29, Mumbai dated 18/01/2017 for A.Y.2010-11 in the matter of order passed u/s.143(3) r.w.s. 147 of the Income-Tax Act, 1961.
In this appeal, assessee is aggrieved for deleting addition of 12.5% on bogus purchases.
Rival contentions have been heard and record perused.
The facts of the case are that the assessee firm filed its return of income for the A.Y.2010-11 on 26.08.2010 declaring a total income of Rs.1,85,521/-. The return was processed u/s.143(1). Subsequently, the AO received information from the DGIT(Inv), Mumbai who in turn received information from the sales tax department about some hawala entry Shri. Mahavit Metal providers on the basis of which the case was reopened u/s.147. The information was that the sales tax department has exercised due diligence which revealed that the assessee was involved in taking accommodation entries of bogus purchases from 11 parties amounting to Rs. 2,08,32,713/-.
The sales tax department has classified these parties as hawala dealers. AO observed that it is evident from the report of the sales tax department and statement recorded from these parties that purchases, shown by the assessee from these parties are bogus and nothing but accommodation entries to inflate purchases to reduce taxable profits/income. During the course of assessment proceedings, the AO asked the assessee to furnish details of the purchases alongwith the name, address, TIN No. and amount debited in the P/L account. Notices u/s. 133(6) were issued to the parties mentioned supra but the same have been returned by the postal authorities as the parties were non existing at the given address. The AO held that the burden to prove the existence of the parties and the genuineness of the purchases lies on the assessee and assessee has failed to discharge the onus cast on it and he treated the purchases as non genuine. Relying on the decision of Gujarat High Court in the case of Simit P. Sheth 356 ITR 451 and M/s. Bholenath Poly Fab P.Ltd. 355 ITR 290 made an addition of 12.5% of the alleged bogus purchases which worked out to Rs.26,04,089/-.
Shri. Mahavit Metal 6. By the impugned order, CIT(A) further reduced the addition made by AO by the G.P. rate declared by assessee after having the following observation:-
3.3. The submissions of the Ld. Counsel for the appellant have been carefully considered alongwith the factual matrix of the case. In the submissions, the appellant also listed its other grievances like certified copies of the statement given by the alleged bogus parties have not been provided to it, opportunity to cross examine the alleged bogus parties was also not provided. Also, the AO merely relied upon the communication of sales-tax department without giving any reason to rebut the evidences furnished by it. 3.3.1. The Ld. Counsel for the appellant expressed his grievance that copies of statements have not been given to the-appellant nor an opportunity to cross examine the parties has been provided but no evidence of his request to the AO Ja provide for cross examination and also copies of the statement has been produced before the undersigned. Without any request from the appellant the AO cannot provide this information. Further, the AO treated the alleged bogus as witnesses of the appellant and asked it to produce them for examination. However, the appellant failed to produce them. The notices issued by the AO u/s.133(6) returned unserved as the parties were not available at the given address. Therefore, the AO cannot provide for cross examination of these parties. 3.3.2. In an/ case, the AO did not state that the above purchases are bogus. He had only treated the parties from whom purchases are being made as bogus T^rcTO from some other parties in the grey market at a lower rate and t therefore suppressed profit. He had estimated the profit on such purchases at 12.5%, 3.3.3. The Hon'ble ITAT, Ahmedabad 'C' Bench in the case of Vijay Proteins Ltd. vs. ACIT 58 ITD 0428 held that in similar circumstances, 25% of the purchase price accounted through fictitious invoices has to b'e disallowed. The Hon'ble High Court of Gujarat in the case of Sanjay Oil cakes v/s CIT 316 ITR 0274 deait with similar case where some of the alleged suppliers who had issued bills to the assessee were not genuine as they were not traceable. The goods must have been received from other parties. The likelihood of the purchase price of these alleged purchases being inflated could not be ruled out and therefore the Hon'ble High Court has upheld the decision of CIT(A) and the ITAT disallowing 25% of the payments made to such parties, Th.e Hon'ble High Court of Gujarat in the case of CIT vs. Simit P. Sheth 356 ITR 0451 held that once the sale is accepted by the AO, the very basis of purchases could not be questioned. Not the entire purchase price could be disallowed but only the profit element embedded in such purchases could be added to the income of the assessee. The estimation varies with the nature of business and no uniform yardstick could be adopted. Given the facts and circumstances of the instant case, I find it reasonable to estimate the gross profit on the alleged bogus purchases at 12.5%. The action of the AO in estimating the GP @12.5% on the alleged bogus purchases is confirmed. However, the AO is directed to reduce the profit already declared by the appellant on these purchases from such estimate. These grounds of appeal are partly allowed.