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Income Tax Appellate Tribunal, “J” BENCH, MUMBAI
Before: Shri Ramesh J Shah Shri Ramesh J Shah
These cross appeals are arising out of the order of Commissioner of Income Tax (Appeals)-30, Mumbai, [in short CIT(A)] in appeal No. CIT(A)- 30/19(3)(1)/548/15-16 dated 16-01-2017. The Assessment was framed by the Income Tax Officer, Ward No. 19(3)(1), (in short ITO) for the &1509/Mum/2017 Shri Ramesh J Shah (A.Y. 2009-10) assessment year 2009-10 vide order dated 16-03-2015 under section 143(3) of the Income Tax Act, 1961(hereinafter ‘the Act’).
The only surviving issue in these appeals of assessee and of Revenue, is as regards to the order of CIT(A) restricting the addition at the rate of 12.5% of the bogus purchases of ₹ 4,62,32,005/- as against profit rate estimated by the AO at 25%. For this assessee has raised following ground Nos. 1 to 3: -
“1. On the facts and in law, the Ld. CIT(A) erred in confirming the additions made solely on the basis of list of “suspicious dealers” uploaded on website of Sales Tax Dept., without proving that alleged bogus parties have actually provided accommodation entries to appellant.
2. On the facts and in law, the Ld. CIT(A) erred in upholding purchases made from alleged bogus parties as accommodation entries, ignoring the fact that appellant is a trader and there are documentary evidences available to substantiate purchases i.e. payments were made by account payee cheques, quantitative records are maintained and for every purchase there was corresponding sales which has been accepted by Assessing Officer.
3. On the facts and in law, the ld. CIT(A) erred in sustaining an addition to the extent of 12.5% of the purchases, being the profit element embedded in purchases from the alleged bogus parties on the ground that the motive of obtaining the bogus bills was inflation of purchase price so as to suppress true profit.”
Revenue has raised following ground: -
&1509/Mum/2017 Shri Ramesh J Shah (A.Y. 2009-10)
1. 1. 0n the facts and circumstances of the case and in law. Whether Ld. CITA) was justified in sustaining only an addition @12.5 % profit rate on the total value of purchases from The ten parties totaling to Ps. 4,62,32,005/- as the assessee failed to prove the genuineness of said purchases when asked to provide the evidences of whereabouts of the purchases parties, delivery challans and detailed stock register having specific inward and outward entries by the Assessing Officer.".”
Briefly stated facts are that the assessee is engaged in the business of trading in ferrous and non-ferrous metals under the proprietorship concern by name M/s Jay Steel Corporation. The AO received information from DGIT investigation, Mumbai that certain hawala parties are issuing bogus bills of purchases/ sales and assessee is beneficiary of such transactions pertaining to the following seven parties: -
S. No. Name Purchase amount in ₹ 1. Oscar Metals 23,92,801/- 2. Jinesh Metal 29,17,630/- Corporation 3. Gurukul Steel 47,64,501 4. Vigneshwar Impex 50,07,891 5. Aniket Steel Pvt. 70,82,796 Ltd 6. Tyson Steel And 1,46,71,557 Tube 7. Neelam Industries 9,28,190 8. Moksha Metals Pvt. 9,37,403 Ltd 9. Shree Kesar Impex 32,16,498 10. Shree Kesar Impex 43,12,738 Total 4,62,32,005 4. It means that the total accommodation entry from these ten parties were taken by the assessee for an amount of ₹ 4,62,32,005/-. According &1509/Mum/2017 Shri Ramesh J Shah (A.Y. 2009-10) to AO, the assessee has failed to prove the genuineness of the aforesaid purchases and accordingly, disallowed a sum of ₹ 1,15,58,001/- being 25% of the total of ₹ 4,62,32,005/- of bogus purchases. Aggrieved, assessee preferred the appeal before CIT(A).
The CIT(A) after considering the submissions of the assessee held the purchases as bogus but restricted the addition by estimating the profit rate of 12.5% for the reason that the assessee has obtained bogus bills but he has purchased the material from grey market for which he has saved taxes and purchased material at a lower rate. The CIT(A) observed in para 6.12 as under: -
“6.12 The motive behind obtaining bogus bills thus, appears to be inflation of purchase price so as to suppress true profits. Considering the facts of the case as well as the various case laws cited (supra), and also as pleaded by the appellant in Ground No.1, questioning the arbitrary estimation of profit element ©25% of the alleged purchases without considering the fact that preceding and subsequent years G.P. is shown in the range of 6.12% to 6.78%, I feel that if 12.5% of the total purchases are added as the profit element embedded on such purchases to the total income, that will meet the ends of justice. In view of the above, and also considering the facts of the present case which is similar to the facts of the case of CIT vs. Simit P. Sheth (supra), respectfully following the decision in that case with regard to the estimation of profit, AO is directed to restrict the &1509/Mum/2017 Shri Ramesh J Shah (A.Y. 2009-10) addition to 12.5% of the non-genuine purchases of 4,62,32,005/-, made from the ten parties. Accordingly, Ground No. 1 of the appeal is treated as 'Partly Allowed'.”
Aggrieved, Revenue is in appeal before the Tribunal.
We have considered the issue and gone through the facts and circumstances of the case. We find that the CIT(A) has applied 12.5% of the profit rate, which seems to be unreasonable for the reason that in the nature of trade of iron and steel the profit is very low and hence, we restrict the profit rate at the rate of 8% and partly allow the appeal of the assessee. Since, we have allowed the appeal of the assessee partly, the appeal of Revenue is dismissed.
In the result, the appeal of Revenue is dismissed and the same 7. of assessee is partly allowed.
Order pronounced in the open court on 16-11-2017.