ACIT 19(2), MUMBAI vs. NOCIL STEEL, MUMBAI

The only issue raised by the revenue in this appeal is against the restriction of addition on account of bogus purchases to the tune of 7.5% of the total of such alleged purchases which were not proved to be genuine.

Facts of the case are that the assessee filed return of income on 23.9.2011 declaring total income at Rs.28,38,950/-. The same was processed under section 143(1) of the Act. The case of the assessee was selected for scrutiny under CASS and accordingly statutory notices u/s 143(2) and 142(1) were issued and served upon the assessee. The assessee is engaged in the business of ferrous and non-ferrous metals and its allied products. The AO during the course of assessment proceedings, issued notices u/s 133(6) to the various parties from whom the assessee made purchases during the year. However, the notice issued to Apex Ferromate Pvt Ltd was returned unserved by the postal authority. Thereafter it was noticed that the said party is a hawala dealer which was identified by the DGIT(Inv), Mumbai and also from Sales Tax Department, Government of Maharashtra. Therefore, the AO issued notice to the assessee to prove the genuineness of the purchase failing which the same would be disallowed and added to the total income of the assessee. The assessee submitted before the AO that the payments of the 3 I . T . A . N o . 4 5 0 5 / m u m / 2 0 1 5 purchases were made through banking channels, and also placed before the AO complete details thereof. The ld.AR also submitted that the books of accounts of the assessee were duly audited and there were no mention about the non-genuine purchases. However, the AO did not accept the contention of the ld. AR and he finally added the sum of Rs.51,49,820/- to the total income u/s 69C as peak credit on the basis of undisclosed cash which has been utilized in such purchases. The addition was challenged before the FAA who partly allowed the appeal of the assessee vide para 2.10 and 2.12 of the appellate order which is as under : “2.10 Ground no.1 and II are general in nature and for the reasons to be given in respect of subsequent grounds, thee grounds needs not be adjudicated separately. 2.11 Ground No.III has not been pressed by the ld.AR during the course of appellate proceedings and he has accordingly, indicated against said ground in form No.35. Accordingly, ground No.III is dismissed as not pressed. 2.12 Ground No.IV (wrongly types as III again) is in respect of action of the ld.AO in treating the purchases from one of its suppliers as bogus and thereby making an addition u/s 69C of Rs.51,49,820/- ld.AO made the above addition on the basis of information received from MVAT authority as in earlier years. 2.12.1 Similar issue was adjudicated in the appellant’s own case for AY 2010-11 in appeal No. CIT(A)-30/ACIT. 19(2)/424/2014- 15(supra). For the detailed reasons given therein which shall apply on all focus to this case, the ground raised is partly allowed by estimating the embedded income at 12.5% of the total purchases of Rs.96,08,509/- from the bogus supplier. However, as the appellant has already offered an average gross profit of 5% during the last few years, the net addition confirmed would be 7.50% (12.5%-5.00%0 Accordingly ground no.IV is partly allowed”

After hearing the ld DR. and on perusal of the records as placed before us , we find that the assessee undoubtedly has availed hawala entries from the hawala operators. The explanation offered by the assessee did not find favour of the assessing officer and hence the AO added a sum of Rs.51,49,820/- to the total income u/s 69C as peak credit on the basis of undisclosed cash which were treated as bogus purchase. The CIT(A) partly sustained the addition at 7.5% of the total bogus purchases. Having considered the facts of the case and the rival contentions, we find that the ld.CIT(A) while restricting the addition of 7.5% of the total bogus purchases followed its predecessor’s order. We also find that the co-ordinate benches of the Tribunal have been taking a consistent view under same facts that some percentage addition ranging from 5% to 12.50% or a reasonable percentage of the bogus purchase should be made towards savings which the assessee may have made by purchasing the material from gray market thereby saving VAT and other incidental taxes. Therefore we are of the opinion that the ld.CIT(A) has taken a reasoned and cogent view in the assessee’s case by applying 7.50% of the bogus purchases and therefore we find no reason to interfere in the same. Accordingly we affirm the order of CIT(A) by dismissing the appeal of the assessee.