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Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
Before: SHRI MAHAVIR SINGH, JM & SHRI NK PRADHAN, AM
These are four appeals by the Revenue and the assessee are arising out of the different orders of CIT(A), Mumbai, in Appeal Nos. CIT(A)-44/ITO- 32(1)(5)/ITA-108 & 109/2014-15 both dated 13-03-2015. The Assessments were framed by ITO, Ward-32(1)(5), Mumbai for the A.Y. 2007-08 vide order dated 27.02.2015 under section 143(3) of the Income Tax Act, 1961(hereinafter ‘the Act’).
The only common issue in these four appeals, two by assessee and two by Revenue, is against the order of CIT(A) restricting the addition made by A.O. by applying profit rate @ 2.52% of the bogus purchases. The assessee has challenged the restriction of addition at 2.52% and Revenue has challenged the deletion. The assessee has also challenged the reopening of assessment u/s. 147 of the Act in both the cases, but subsequently, during the course of hearing, the ld. Counsel for the assessee requested for withdrawal of this ground under the inspection of the assessee. It means that only effective issue in these four appeals is as regards to restriction of addition by CIT(A) for applying profit rate @ 2.52% of bogus purchases remains.
Briefly stated facts in both the cases are that, a search and seizure operation was conducted by the Sales Tax Department of Maharashtra in the Praveen Kumar Jain Group of cases and from where it is noticed that this group of cases is involved in providing accommodation entries like bogus purchases/sales, unsecured loans, etc. The A.O. received information through Investigation Wing of the department that both the assessee’s are beneficiaries of & 5620/M/15, 64 & 648/M/16 Assessment Year: 2007-08 accommodation entry like bogus purchases during the financial year 2006-07 relevant to A.Y. 2007-08. Both the assessee’s received bogus purchases as under:
In the case of Indubhai Purushottamdas Vora Sr. Name of the concern controlled and managed by Shri Amount No. Praveen Kumar Jain (Rs.) 1 Capetown Mercantile now known as Sumukh Commercial 74,85,048 Pvt. Ltd. 2 Faststone Trading Co. Pvt. Ltd. now known as Atharv 1,08,86,323 Business Pvt. Ltd. 3 JPK Trading (I) Ltd., now known as Dukes Business Pvt. 49,63,325 Ltd. 4 Natasha Enterprises 12,49,251 5 New Planet Trading Co. Pvt. Ltd. now known as Ansh 49,63,325 Merchandise Pvt. Ltd. 6 Ostwal Trading (I) Pvt. Ltd. now known as Casper 31,25,214 Enterprises Pvt. Ltd. Total 3,26,72,486 In the case of Indubhai Purushottamdas Vora (HUF)
Sr. Name of the concern controlled and managed by Shri Amount No. Praveen Kumar Jain (Rs.) 1 Capetown Mercantile now known as Sumukh Commercial 40,12,442 Pvt. Ltd. 2 Faststone Trading Co. Pvt. Ltd. now known as Atharv 60,17,034 Business Pvt. Ltd. 3 JPK Trading (I) Ltd., now known as Dukes Business Pvt. 45,23,177 Ltd. 4 Natasha Enterprises 20,20,282 5 New Planet Trading Co. Pvt. Ltd. now known as Ansh 21,74,873 Merchandise Pvt. Ltd. 6 Ostwal Trading (I) Pvt. Ltd. now known as Casper 34,83,874 Enterprises Pvt. Ltd. Total 2,22,31,682
According to the A.O. the entire purchase is bogus and merely accommodation entry received by assessee from entry providers. Accordingly, he disallowed the entire purchases and added to the returned income of the assessee, in both the years, u/s. 69C of the Act as unexplained expenditure. Aggrieved, the assessee preferred appeal before the ld. CIT(A) in both the cases. & 5620/M/15, 64 & 648/M/16 Assessment Year: 2007-08
The CIT(A) restricted the disallowance at 2.52% of the bogus purchases in both the years, relying on the case law of Hon’ble Supreme Court in the case of Saraswati Oil Traders vs. CIT 254 ITR 259 (SC) and Hon’ble Bombay High Court in the case of Nikunj Enterprises 372 ITR 619 (Bom). He also observed that the only profit element of the total component is in dispute, which needs to be added to the assessee’s returned income. Accordingly, he restricted the addition at 2.52% of the bogus purchases as profit. Aggrieved, in both the cases, Revenue as well as assessee preferred appeal before Tribunal.
We have heard the rival contentions and gone through the facts and circumstances of the case. Admitted facts are that one Praveen Kumar Jain Group of cases was involved in providing accommodation entries of bogus purchases and rather they were providing only bogus 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 trading of plywood under the name and style of Shiv Shakti Enterprises. Once the sale is made by assessee and which is not doubted, it means that the assessee has procured bills from the entry provider Praveen Kumar Jain Group of cases 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 judgement 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 and respectfully following the same, we also will estimate the profit rate at a higher rate than applied by the CIT(A) at 2.52%, which is very low. According to us, a reasonable profit rate of 10% will meet the end of justice. We direct the A.O. to apply profit rate at 10% and add the same to the return income of both the assessee’s. & 5620/M/15, 64 & 648/M/16 Assessment Year: 2007-08
In the result, the appeals of the Revenue are partly allowed and that of the assessee are dismissed.
Order pronounced in the open court on 27-09-2017.