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Income Tax Appellate Tribunal, “J”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI SANDEEP GOSAIN, JM
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)—37, Mumbai dated 28/11/2016 in the matter of order passed u/s.143(3) r.w.s. 147 of the IT Act. 2. Grievance of assessee revolves around reopening of assessment u/s.147 as well as merit of the addition made on account of bogus purchases. 3. Rival contentions have been heard and record perused. 4. Facts in brief are that the assessee is a firm engaged in the business of reseller of steel sheets and plates. The AO had the information some of the parties from whom the assessee had made purchases were bogus and they are engaged in the business of providing bills without actual M/s. SVPHN Steel Service delivery of goods. After satisfying, the assessee had made corresponding sales. The A.O. has disallowed 12.5% of alleged purchase of Rs.5,62,78,018/- i.e., Rs.70,34,752/- and added to the total income of the assessee.
By the impugned order CIT(A) confirmed the action of the AO, against which assessee is in further appeal before us.
It was argued by learned AR that the Assessing Officer has not appreciated the fact that all purchases are either backed by corresponding sales or are in the closing stock. Similarly, all sales are from the purchases recorded in the books of account and that without purchases there cannot be sales and similarly, sales is not possible without purchases.
Further, there is no adverse finding of the tax auditor as regards the quantitative details of purchases, sales and closing stock is concerned. The stock register is also duly maintained by the assessee.
It is contended that all the documents in support of the alleged bogus purchases have been filed with the Assessing Officer and the CIT(A). A sample of the same has been filed in the paper book filed with the Honourable Tribunal.
It was further submitted that the Assessing Officer has not rejected the books of account and hence, addition on account of gross profit cannot be made. Reliance for the said proposition is placed on the decision of co- ordinate Bench of Mumbai Tribunal in the case of Sharad Constructions Pvt. Ltd. which is there in the decision paper book filed on the date of M/s. SVPHN Steel Service hearing - page no 57 of the paper book, internal page no 11 of the decision. It is imperative to mention that this decision of the co-ordinate Bench of the Mumbai Tribunal is also in the case of bogus purchases relating to Sales tax Department and the Honourable Tribunal in that case has deleted the entire addition made by the Assessing Officer.
Without prejudice to our contention that there cannot be any addition, we submit that the Assessing Officer should estimate the gross profit rate on the basis of records of the assessee or any other assessee in the same line of business. The Assessing Officer does not give any reasoning whatsoever as to how gross profit rate of 12.5% is arrived at. This arbitrary rate of 12.5% is exorbitantly high in case of trader of steel.
We have considered rival contentions and carefully gone through the orders of the authorities below. We had also deliberated on the judicial pronouncements referred by lower authorities in their respective orders as well as cited by learned AR and DR during the course of hearing before us.
From the record, we found that after finding that suppliers were suspicious, AO estimated profit of 12.5% with respect to such alleged purchases and added the same in assessee’s income. It is clear from the order of the AO that he has accepted the corresponding sales and was only disputing profit element on such purchases. The CIT(A) has confirmed the action of the AO estimating profit at 12.5% by relying on the decision of Gujarat High Court in the case of Simit P Seth 256 ITR 451. It was argued by learned AR that in the case of Simit P Seth estimation of M/s. SVPHN Steel Service profit of 12.5% by the High Court was made on the plea that rate of VAT was 10% in Gujarat and additional 2.5% profit was estimated. However, in the State of Maharashtra, where assessee carries on its business, the VAT is 4%, therefore, in place of 10%, 4% should be taken into account. It was contended that tax amount on account of VAT was also recovered from the assessee thereby leaving no benefit of VAT. We also found that assessee has already declared GP of 3.9% on the sales so made during the year. Therefore, keeping in view the totality of facts and circumstances of the case vis-à-vis nature of assessee’s business, GP offered by the assessee and also the rate of VAT prevailing in Maharashtra, having been recovered from assessee, we direct the AO to restrict the addition to the extent of 2% of such purchases.
In the result, appeal of the assessee is allowed in part.