AXIS REALTY P. LTD,MUMBAI vs. DCIT 9(1), MUMBAI

This appeal by the Revenue is arising out of the order of Commissioner of Income Tax (Appeals)-20, Mumbai [in Short CIT(A)] in Appeal No. CIT(A)-20/DCIT-9(1)/IT- 31/2014-15 dated 08.02.2016. The Assessment was framed by Deputy Commissioner of Income Tax Circle-9(1), Mumbai (in short DCIT or AO) for the A.Y. 2011-12 vide his order dated 20.03.2014 under section 143(3) of the Income Tax Act, 1961(hereinafter ‘the Act’).

Briefly stated facts are that the assessee company is engaged in the business of development and construction of properties and also providing consultancy in real estate. During the course of assessment proceedings, the A.O. noticed from the information received from DGIT, Mumbai that the assessee is involved in obtaining bogus bills of purchase of material from the parties who are already admitted before Maharashtra Sales Tax Department that they are providing bogus bills for purchase to the beneficiaries. The assessee being one of the beneficiaries has shown bogus purchases from following parties:

Accordingly, the A.O. added the entire bogus purchases to the returned income of the assessee. Aggrieved, the assessee preferred an appeal before the ld. CIT(A) who after considering the submissions of the assessee and also the fact that the assessee has only obtained bills from these hawala parties, but has made purchases from grey market, he restricted the addition at 40% of the bogus purchase of Rs.17,81,271/-, which comes to Rs.7,12,508/-. Aggrieved, the assessee preferred an appeal before the Tribunal.

We have heard the rival contentions and gone through the facts and circumstances of the case. Admitted facts are that the above parties were involved in providing accommodation entries of bogus purchases and rather they were providing only bogus (A.Y. 2011-12) Axis Realty Private Limited vs. Dy. CIT bills of purchase. The assessee is one of the beneficiaries of the same. The A.O. or the CIT(A) has not doubted the sales made by the assessee out of the bogus purchases. The assessee is engaged in the business of development and construction of properties and also providing consultancy in real estate. Once the sale is made by assessee and which is not doubted, it means that the assessee has procured bills from the entry provider and presumably the material is purchased from grey market without payment of Maharashtra VAT. The assessee might have purchased at lower price, which is not verifiable. In such circumstances, we have no alternative except to estimate the profit rate, i.e., the NP rate earned by assessee on the savings he has made of Maharashtra VAT and purchase of items at a lower price. We take guidance from the judgment of Hon’ble Gujarat High Court in the case of CIT vs. Smith P. Seth (2013) 356 ITR 451 (Guj), wherein Hon’ble Gujarat High Court has applied profit rate at 12.5% on the bogus purchases. Respectfully following the same, we also will estimate the profit rate at 12.5% and restrict the addition accordingly. According to us, a reasonable profit rate of 12.5% will meet the end of justice. We direct the A.O. to apply profit rate at 12.5% and add the same to the return income of both the assessee’s.