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Income Tax Appellate Tribunal, “SMC” Bench, Mumbai
Before: Shri B.R. Baskaran (AM)
These three appeals filed by the assessee are directed against the orders passed by the learned CIT(A)-17, Mumbai and they relate to A.Y. 2009-10, 2010-11 and 2011-12. The assessee is aggrieved by the decision of the learned CIT(A) in confirming the disallowance relating to bogus purchases.
The assessee is a manufacturer and dealer in castings of ferrous and non-ferrous metals. Consequent to the information received from the Sales Tax Department that certain dealers are indulging in providing accommodation bills without actually supplying materials and upon noticing that the assessee has purchased goods from such hawala dealers, the Assessing Officer reopened the assessments of the three years under consideration by issuing notices u/s. 148 of the Act. The aggregate amount of purchases made from suspicious parties was Rs.21,52,690/-, Rs.7,57,044/- and Rs.8,37,025/- respectively in the years relevant to the assessment years 2009-10, 2010-11 and 2011-12. In the reopened assessment, the Assessing Officer asked the 2 Kumud Metal Foundry Pvt. Ltd.
assessee to furnish all relevant details to prove the genuineness of the purchases. After considering the replies, the Assessing Officer held that the genuineness of purchases was not proved and accordingly disallowed 12.50% of the value of alleged bogus purchases referred above, which worked out to Rs.2,69,086/-, Rs.94,630/- and Rs.1,04,628/- respectively in AY 2009-10, 2010-11 and 2011-12. In the appellate proceedings, the learned CIT(A) confirmed the addition made in all the three years. Aggrieved, the assessee has filed these appeals before the Tribunal.
Learned AR submitted that the assessee has furnished to the AO all the details to prove the genuineness of purchases. He further submitted that the assessee has declared gross profit of 21.15%, 19.19% and 28.79% respectively in AY 2009-10, 2010-11 and 2011-12. He further submitted that the value of alleged bogus purchases constitute 8.97% of turnover in AY 2009-10; 2.09% of turnover in AY 2010-11 and 1.85% of the turnover in AY 2011-12. He submitted that the VAT rate applicable to the purchases is only 4%. Accordingly, learned AR submitted that there is no reason to suspect the genuineness of purchases merely on the basis of statement given by the suppliers and accordingly contended that the Ld CIT(A) was not justified in confirming the addition made by the AO.
Learned Departmental Representative, on the contrary, submitted that the AO as well as learned CIT(A) has given proper reasoning for confirming the addition. Accordingly, he submitted that entire addition has been rightly sustained by Ld CIT(A).
I have heard the parties and perused the record. I noticed that the assessee has furnished copies of purchase bills and payment details. The assessee has, however, failed to furnish any proof to show that the materials were physically transported to the premises of the assessee. During the course of assessment proceedings the AO issued notices u/s 133(6) of the Act, but they were not served. The assessee has neither furnished confirmation letters
3 Kumud Metal Foundry Pvt. Ltd. obtained from the suppliers nor could it produce the suppliers before the AO in order to prove the genuineness of purchases. Hence it cannot be said that the assessee has conclusively proved the purchases. Since goods cannot be sold without making corresponding purchases, the AO has sustained addition to the extent of 12.50% of the value of alleged bogus purchases in all the three years. Since the impugned suppliers have been named as hawala dealers and since the assessee could not produce those parties before the AO, one of the possible views is that the assessee should have sourced the materials from some other person and thereby made profit there from.
The Ld A.R submitted that the estimation of profit at 12.50% is on the higher side, since the VAT rate applicable to the impugned items is only 4%. He also submitted that the company is showing high gross profit rate of more than 20%. Considering this fact and also the rate of G.P declared by the assessee and also considering the fact that the assessee should have sourced the material at lower rate, I am of the view that the addition may be sustained to the extent of 6% of the value of alleged bogus purchases. Accordingly I modify the orders of the learned CIT(A) on this issue in all the three years under consideration and direct the Assessing Officer to sustain the addition in both the years to the extent of 6% of the value of alleged bogus purchases. I order accordingly.
In the result, all the appeals filed by the assessee are partly allowed. Order has been pronounced in the Court on 27.9.2017.